Market News

Pensions holdings in bonds up Sh92 billion

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Retirement Benefits Authority CEO Nzomo Mutuku. FILE PHOTO | NMG

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Summary

  • Pension funds now account for 29.46 per cent of government domestic debt, which at the end of May stood at Sh3.155 trillion.
  • This translates to holdings worth Sh929.7 billion for the pension funds.
  • At the beginning of the year, they held Sh837.9 billion worth of debt, equivalent to 28.6 per cent of the total of Sh2.935 trillion.

Pension funds have raised holdings of government debt by Sh92 billion since the beginning of the year, turning to the securities for assured yields at a time equities and property have taken a beating from the pandemic.

The Central Bank of Kenya (CBK) data shows the funds now account for 29.46 per cent of government domestic debt, which at the end of May stood at Sh3.155 trillion. This translates to holdings worth Sh929.7 billion for the pension funds.

At the beginning of the year, they held Sh837.9 billion worth of debt, equivalent to 28.6 per cent of the total of Sh2.935 trillion.

Pension funds are normally the biggest subscribers to long-term government bonds, given the need for assured, stable returns in the long-term to service the payment of pensioners.

Surveys done on the industry for the first quarter of the year by fund administrator Zamara and Actuarial Services East Africa (Actserv), covering more than 400 schemes, showed the asset allocation towards fixed-income investments had gone up to between 75 and 77 per cent, from about 65 per cent in December 2019.

At the same time, they cut equities exposure from 23 percent to 18 percent.

“The survey shows that the average scheme’s exposure to equity and offshore investments decreased with allocations to fixed income and property increasing over the quarter,” said Zamara.

The yield curve of Kenyan government securities ranges between 7.2 percent for the shortest tenor (91-day Treasury bill) and 13.5 percent for the longest (23-year bond) as per the latest CBK data.

These returns comfortably beat inflation, which stood at 5.47 percent last month, and the returns from equities, which are in the negative this year.

The blue-chip NSE 20-Share Index has shed 25.7 percent since the beginning of the year, while the NSE All-Share Index is down 15 percent.

Banks remain the largest holders of government debt, however, accounting for 54.4 percent or Sh1.7 trillion, while insurance companies hold 6.11 percent, equivalent to Sh192.8 billion.

Parastatals account for 5.63 percent of Sh177.7 billion, while other investors, who include individuals and investment clubs, account for 4.36 percent or Sh137.6 billion.