The Nairobi Securities Exchange (NSE) traded the largest-ever turnover of bonds last year, thanks to significant liquidity and a weak equities market in the first half of the year.
NSE data shows that the secondary market bond turnover —both government and corporate — stood at Sh651 billion, 15.84 per cent higher compared the previous year’s transactions.
“The bonds market outpaced 2018 numbers in activity by 15.84 per cent to Sh651 billion from Sh562 billion traded in the year 2018,” said the NSE in its end-of-year report.
Most of the fixed-income instruments continued to be bought and held by commercial banks — especially the top-tier institutions — which had an accumulation of liquidity at a time of restricted movements in lending rates.
The trading for the year was at its peak in July when more than Sh80 billion was transacted but this changed later in the year as liquidity tightened and the rate cap was removed. The equities market also began to recover.
“High liquidity levels in July saw Sh84.70 billion traded with tight liquidity and change in tactics towards the end of the year saw a low of Sh16.48 billion traded in December,” said Kingdom Securities in its update to clients.
The year 2018 also happened to have a high turnover of bonds — the second-highest historically — as a result of similar factors, having only been surpassed by the turnover in 2012, which stood at Sh565 billion. This was Sh3 billion higher than in 2018.
Commercial banks held 54.23 per cent of the bonds, insurers held 6.51 per cent, parastatals had 6.67 per cent while pension funds had 28.24 per cent. Other investors held 4.35 per cent.
As of December 20, the bonds constituted 66.73 per cent of the government debt with most of the other debt in the form of shorter-dated instruments, mostly Treasury bills.
The bonds market benefited from the reduced attraction of the equities market where the NSE 20 Share Index fell by 6.33 per cent and the turnover fell by 12.4 per cent during the year even as the other indices (NSE 25 and NSE All-Share) recorded improved performance.
The equities market only recovered after the interest rate cap was removed and commercial banks’ share prices shot up, boosting the entire market.