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Eurobond values drop on Moody’s credit downgrade


The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG

Prices of Kenyan sovereign bonds have fallen significantly since May 7 when rating agency Moody’s downgraded the country credit rating to negative from stable.

The change is more pronounced than had previously occurred after the report of the first confirmed local Covid-19 case.

Data from the Central Bank of Kenya (CBK) shows yields, whose increase indicate falling prices, were up by amounts ranging from a half percentage point to 1.315 percentage points within five working days between May 7-14.

The rise in yields signals the country would pay higher interest rates should it decide to go to global markets for commercial borrowing as it did in the past through syndicated loans and sovereign bonds.

On average the decline in the yields stood at 0.825 percentage points, equivalent to 82.5 basis points, during the week since the downgrade.

“In the international market, yields on Kenya’s Eurobonds increased by an average of 82.5 basis points,” the CBK said.

Cytonn Investments said it expected investors to continued asking for a premium on the Eurobond because of the projected slower growth and the Moody’s downgrade

“We anticipate investors to continue attaching a higher risk premium on the country due to the anticipation of slower economic growth attributable to the coronavirus pandemic and the recent downgrade by Moody’s.”

On May 7, Moody’s Investors Service released a statement saying it had changed Kenya’s credit rating to reflect the escalation in financing risks of the country’s large borrowing requirements.