Last year’s demand for the fixed-income instruments was driven by diversification of income by commercial banks and non-bank institutions as well as by foreign investors.
Some foreigners who were divesting from their equity portfolio on the Nairobi Securities Exchange (NSE) moved cash into the fixed-income market driving up the turnover numbers.
The secondary bond market turnover rose by 29 percent in 2018, marking it the second highest ever sales for the instruments at the Nairobi bourse for eight years.
The activity in the bonds counter hit Sh562 billion, making 2018 the only year apart from 2012 when the Nairobi Securities Exchange (NSE) bond turnover has exceeded Sh500 billion. In 2012, the turnover stood at Sh566 billion.
Last year’s demand for the fixed-income instruments was driven by diversification of income by commercial banks and non-bank institutions as well as by foreign investors.
Some foreigners who were divesting from their equity portfolio on the Nairobi Securities Exchange (NSE) moved cash into the fixed-income market driving up the turnover numbers.
“The bonds market outpaced 2017 numbers in activity by 29 percent to Sh562 billion from Sh435 billion traded in year 2017,” said the NSE in an update on the 2018 market performance.
The amount is for the sales side but the buying side has a similar amount. Brokerages earn commissions from both the sales and buying sides of a transaction.
“The sale by foreigners of the equities saw a good number of them turn to the fixed-income side. There was a lot of liquidity on the side of bonds,” said a fixed-income expert working in a Nairobi-based brokerage house. The equities market lost Sh419 billion in paper wealth last year as prices of most listed firms fell.
The expert explained that the suffering on the equities market was not altogether bad for the stock market because it shifted a bit of the wealth to the fixed-income market, pushing up the turnover.
Besides the shift, there was also the impact of the restrictions on the movement in interest rates that saw some commercial banks as well as non-bank institutions rush to the secondary market to accumulate more bonds.
“Financial institutions were seeking to get a good piece of the action on government securities in the secondary market in the second half of the year once they realised that the rate cap was not going to be reviewed,” said the expert.
Last year, MPs retained the restriction on commercial banks’ lending rate even as they removed the one on the deposit rate. Lending rates have been restricted to a maximum of four percentage points above the Central Bank Rate since September 2016 and attempts to change this has met resistance from legislators.
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