Capital Markets

Yields on Kenya Eurobonds jump as Ukraine crisis spook investors


The Central Bank of Kenya building in Nairobi. PHOTO | DENNIS ONSONGO | NMG

Yields on Kenya’s Eurobonds rose sharply last week as Russia’s invasion of Ukraine caused investors to flee to safe-haven western bonds, putting in doubt Kenya’s plan to issue new debt by the end of June.

The yields rose by an average of 0.86 percentage points last week, one of the highest weekly jumps since they were listed from 2014, in line with the general performance of other African sovereign bonds which also recorded sharp yield jumps.

The highest jump was on the seven-year tranche maturing in 2027, up 1.24 percentage points to 8.15 percent.

The secondary market yields on Kenya’s $6.1 billion (Sh694.4 billion) Eurobonds go up when there is heightened risk perception on the debt, with prices falling in turn as many look to offload the papers. The four outstanding Eurobonds are traded on the Irish and London stock markets.

Pricing for a new issuance is guided by the prevailing yields on secondary market bonds as it shows what investors are likely to demand in order to lend to the government.

“In the international market, yields on Kenya’s Eurobonds rose by an average of 86.6 basis points. Similarly, the yields on the 10-year Eurobonds for Ghana and Angola increased,” said the Central Bank of Kenya (CBK) in its weekly bulletin.

The heightened risk perception on African sovereign debt is part of the jitters that have hit international markets since the Ukraine invasion, which has caused oil and wheat prices to spike and raised inflation fears.

Kenya has been planning to go back to the international debt market to raise up to $2.19 billion (Sh249.3 billion) before the end of the current fiscal year as part of budget deficit financing measures.

The government had eyed part of the money before the end of last year, but unfavourable market conditions forced it to shelve the plan and instead eyed a later date before the end of June.

The Treasury is however unlikely to dip into the market at the prevailing high rates, given the significantly higher cost it would entail to service the loans.

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