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Rising Eurobond rates to increase cost of new debt

The Central Bank
The Central Bank. Kenya is likely to borrow at higher rates if it goes to the international markets. FILE PHOTO | NMG 

Kenya is likely to borrow at higher rates if it goes to the international markets after yields on its Eurobonds jumped to hit the highest level since launch in the international markets.

Data from the Central Bank of Kenya (CBK) shows the 30-year bond stood at a high of 10.284 percent on November 27 before easing to 10.014 percent and 9.8 percent last Thursday. The issue first traded in the open market on February 23 at a yield of 8.021 percent, meaning the high reached last week amounts to an increase of 2.263 percentage points.

The 10-year bond has seen its yield rise to 9.071 percent compared to 7.07 percent when it was launched into the market on February 23. Yields on bonds issued in 2014 have also risen.

“Since the issue date, the yields on the 10-year Eurobond (redeemable 2028) and 30-year Eurobond (redeemable 2048) have increased. …The rising yields on all the Eurobonds during the month signal higher country risk perception by investors,” said Cytonn Investments.

It said part of the reason for the increase in yields is the raising of risk of Kenya’s debt distress by the International Monetary Fund (IMF) in October.

“(The rise in yields) was partly attributed to raising the risk of Kenya’s debt distress from low to moderate in October, resulting in investors demanding a higher return for the risk,” said Cytonn.

Kenya’s debt is currently approaching 60 percent of the gross domestic product (GDP) although this is still below Parliament’s approved threshold of 74 percent.

But the ratio of debt service to revenue is over 40 percent, well above the recommended 30 percent for lower middle-income countries and even above the 35 percent maximum recommended for upper middle-income countries.

In the fiscal year ending next June, the Treasury has allocated Sh870.6 billion for debt service against a revenue projection of Sh1.949 trillion.

Debt service will take nearly 45 per cent of the projected revenue. The Treasury has insisted that the debt level remains sustainable.

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