Sh300bn debt payment to kick-start NSE bond market

The secondary bonds market at the Nairobi bourse has been tipped to witness higher activity in the next two months from inflows of rising maturing debt amid expected lower appetite for new borrowing by the Government.

The injection of funds from the new Eurobond issue coupled with the Government being ahead of schedule in domestic borrowing mean that State is not under pressure to borrow much from primary Treasury bill and bond issues, analysts say, confining activity to old bonds.

In May and June, domestic debt maturities amount to Sh170 billion and Sh132.8 billion respectively adding up to Sh302 billion. The rising injections from the maturing debt are already being felt in the money market.

The interbank rate, which was rising throughout April and in the first week of May has retreated by a percentage point to 5.4 percent in the past one week, indicating that banks are increasingly holding more liquidity.

“High market liquidity is expected to have an impact in secondary market in May with turnover expected to increase,” said Kingdom Securities senior analyst Mercyline Gatebi-Kyalo in an economic outlook report for quarter two of 2019.

Last month, bonds turnover at the NSE fell by four percent to Sh59.9 billion, with investors still looking for opportunities in short- and medium-tenor bonds.

The last two Treasury bond issues have also been heavily oversubscribed, giving an indication of the pent up demand for securities in the market.

The Sh50 billion 10- and 20-year bond sold in April attracted total bids worth Sh85.6 billion, of which the government took up Sh60.3 billion.

Earlier this month, the Treasury auctioned a five- and 15-year bond, also seeking Sh50 billion and got bids worth Sh70.8 billion with Sh58.5 billion accepted.

The successful sale of the Sh210 billion Eurobond is, however, seen as likely to reduce the appetite from funds in the securities markets, according to analysts at Commercial Bank of Africa.

Although at least Sh75 billion is earmarked for refinancing the five-year tranche taken up in the 2014 Eurobond, a significant amount is still expected to come into the exchequers coffers to bridge the budget deficit.

The CBA analysts also estimate that Treasury has so far absorbed Sh284.33 billion from the local debt market, 91 percent of the fiscal year’s target.