Bonds turnover at the Nairobi Securities Exchange (NSE) climbed to a 13-month high in August as investors continued their pursuit of the positive returns on offer in the fixed income segment amid a slump in performance of alternative asset classes.
Market data shows that the bonds turnover rose by 2.5 percent to Sh67.4 billion in August from Sh65.8 billion in July, marking a fourth straight month of increase since a 55 percent slump toSh29 billion in April when the country had in place its toughest Covid-19 restriction measures.
With the equities market continuing to offer negative returns, and other alternatives such as property also struggling, investors have been shifting portfolios to fixed income, especially government securities that are offering between 6.2 percent and 13 percent on the yield curve.
“As local investors primarily dominate domestic bond holdings (about 99 percent), we think the dearth in dividend paying stocks has propelled income-biased investors to the fixed income segment,” said city-based investment bank Genghis Capital in a market note.
Those looking to buy bonds on the secondary market are however being forced to pay a premium as many investors holding government paper are unwilling to sell.
In the seven months to July however, turnover is still lagging last year’s total over a similar period.
Investors have traded a total of Sh417 billion worth of bonds this year, compared to Sh499 billion in the first seven months of 2019.
In the primary market, recent bond sales have all been oversubscribed, indicating the high demand for the securities in the current market.
This has led to interest rates remaining low on both the bonds and Treasury bill auctions.
This has worked to the advantage of the Treasury, which needs to borrow a net of Sh494 billion from the domestic market this year, on top of rolling over maturing debt.
In order to take advantage of the lower rates and ample demand (also caused by high liquidity in the market), the government has frontloaded on domestic borrowing, taking up Sh200 billion from the bond auctions in July and August.