Bonds trade turnover at the Nairobi Securities Exchange (NSE) rose by 21 percent in July to hit Sh84.7 billion as investors directed excess liquidity into the market.
The monthly turnover remains at a six-year high, with analysts saying investors who are buying bonds in the secondary market are looking at medium- and longer-term papers, as the Central Bank continues to leave a large number of bids on the table at primary auctions.
For those looking to sell, the attraction has been due to the fact that prices have gone up as yields fall across the curve.
“On a year-to-date basis, government securities on the secondary market have gained with yields declining across the board, which has, in turn, led to price appreciation,” said Cytonn Investments in a monthly markets summary for July.
The monthly turnover is the highest recorded at the NSE since June 2013 and will be welcomed by stockbrokers who earn a commission of 0.03 percent per bond trade.
It will help cover for a fairly lacklustre performance of the equities side, where monthly turnover for the month stood at Sh11.4 billion, an increase from Sh10.54 billion in June.
A bearish run has cut returns from the equities market, making the fixed income segment more attractive to investors.
Fixed-income assets, particularly government securities, are the biggest asset class in the financial markets.
By the end of July, banks remained the biggest holders of government debt, at Sh1.523 trillion, followed by pension funds at Sh783 billion.
The increase during the month was fairly modest, from Sh1.514 trillion and Sh783 billion at the beginning of July respectively for the banks and pension funds, suggesting that those who wanted to increase their stock of securities had to buy them from fellow holders in the market.
The high liquidity in the market has also been a factor.
The interbank rate, which is a good indicator of whether banks need cash, held below three percent during the month, while securities auctions were also oversubscribed.
The slide in the shilling to a four-year low of 104.20 against the dollar was also indicative of the high liquidity, forcing the CBK to actively mop up tens of billions in support.