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Eurobond yields drop on Fed rate remaining steady


Central Bank of Kenya. FILE PHOTO | NMG

Yields on all Kenyan Eurobonds have fallen with most of the change taking place in the past few weeks, data from the Central Bank of Kenya (CBK) shows.

The biggest change since the beginning of the year is on the 10-year paper due in 2024 that declined by 2.2 percentage points to stand at 6.19 percent as at April 4.

The other 10-year paper due in 2028 has seen its yields slump by 1.963 percentage points to stand at 7.121 percent.

The five-year Eurobond issued last year has gone downwards by 0.752 percentage points to 5.118 percent while the yield on the 30-year paper is at 8.187 percent, representing a 1.672 percentage points fall.

Analysts have pointed to the demand for emerging market fixed-income securities in the wake of the pause by the US Fed in raising interest rates.

“The global risk environment has changed with the US Fed not raising the rates as earlier expected. So there has been increasing demand for emerging market bonds. The feeling is that Kenyan eurobond yields should be trading tighter relative to the US treasuries. That is to say that the spreads with the US treasuries should be narrower,” said Jibran Qureishi, regional economist for Stanbic Bank East Africa.

Last month, the US Fed decided to retain the interest rates steady and further indicated that there would be no more increases this year.

Recently, Investment bankers at Citi Global Markets have advised clients to take profit in the Kenyan 10-year Eurobond due in 2024 after significant price increases had been realised in secondary market in recent months.

In a note Citi said that a total return of 6.2 percent had been seen on the bond between January 7 and March 6, a period of two months.

The bankers said they were taking profit as a result of the trading and advised clients to do the same.

“We are taking profits in the long Kenya [10-year bond], initiated on January 7. [Kenya international sovereign bond] maturing in 2024 now trades at 402bps over five-year US treasuries.

We entered the trade at 524bps spread. Total return in the trade is 6.2 percent,” said Citi.