Monthly bonds turnover in the secondary market at the Nairobi Securities Exchange (NSE) rose to a two-year high in February as fixed-income investors looked for a home for excess liquidity.
Turnover hit Sh63 billion during the month, the highest seen since March 2016 when it stood at Sh67.4 billion, nearly doubling from the Sh37.5 billion in trades recorded in January.
A number of investors who found the primary market crowded out due to the Central Bank of Kenya stance of rejecting expensive bids instead went for the secondary market.
The market also recorded increased interest from foreign investors chasing a stake in tax-free infrastructure bonds.
“The spike in bond turnover could be attributed to a shift from the primary market by investors to the secondary market. This was because of the poor uptake of the bids by the apex bank as they sought to curtail aggressive bidding in January. This left banks and funds with a lot of liquidity, hence finding solace in the secondary market seeking for opportunities,” said Kingdom Securities senior analyst Mercyline Kyalo.
“Increased interest from foreign investors in the bonds market could also have pushed the secondary turnover upwards, especially on the infrastructure bond papers.”
On a year-to-date basis, turnover for the first two months of 2018, at Sh100.5 billion, is 84 per cent higher than that recorded in the same period last year.
The money market has remained largely liquid this year, seen in the interbank rate trending downwards to 4.5 per cent from about seven per cent at the beginning of the year.
Banks have therefore sought to put this excess cash into risk-free fixed-income securities, which they now favour ahead of customer lending due to the rate cap which has limited their ability to price in risk on loans.
Analysts at Genghis Capital say however that the activity in the secondary market could ease this month after the government opted to issue a Sh40 billion five- and 20-year bond for the month.