Eurobond yields rise in six months on risk perception

The yields on Kenyan Eurobonds being traded in the London and Irish stock exchanges increased in the first half of the year, indicating that investors were selling off at lower prices as uncertainty rose during the period.

Most of the increase in yields happened in the first quarter of the year when the Covid-19 pandemic reached Kenya with its first confirmed case reported in March.

There has since been some downward movement in yields but they remain elevated relative to the beginning of the year, showing that the uncertainty is yet to abate.

“During the first half of the year, specifically in March 2020, the yield on all Eurobonds increased significantly attributable to investors attaching a higher risk premium on the country.

In the third week of March, there was a sharp increase in the yields of all the issued Eurobonds due to Kenya announcing its first Coronavirus case,” said Cytonn Investments said in its latest analysis of markets.

Yields and prices in the secondary market for bonds move in contrasting directions.

A rise in risk perception sees yields rise — indicating that investors would demand more in interest were a similar paper to be floated at the time.

At the same time, the price of the bond falls, as investors looking to sell it in the secondary market contend with reduced demand and are forced to give a discount in order to find someone to buy their paper.

The biggest increase in yields was on the 10-year paper slated for redemption in 2014, which saw a change of 1.737 percentage points between January 2 and June 30.

The second biggest change was on the seven-year paper issued in 2018 and which experienced an upward change of 1.716 percentage points in the six months to June 30.

The smallest change was seen on the 30-year paper that had only 0.813 percentage points increase during the period signalling that its prices did not fall as much as for the others.