Kenya Eurobond yields drop to 7pc signalling investor confidence

March 22, 2016
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The Eurobond issued at 6.875 percent in 2014 started trading at a premium when yields fell below the market rate in the beginning of 2015/FILE
The Eurobond issued at 6.875 percent in 2014 started trading at a premium when yields fell below the market rate in the beginning of 2015/FILE

, NAIROBI, Kenya, Mar 22 – Kenya Eurobond yields have dropped from a high of 9.5 percent in January to currently around the 7 percent mark signalling improved investor confidence in the economy.

Pan Africa Asset Management Portfolio Manager Kevin Kiprono says the government can now borrow externally without paying a premium to investors.

The Eurobond issued at 6.875 percent in 2014 started trading at a premium when yields fell below the market rate in the beginning of 2015.

On the second half of the year, when the capital flight was significant, the price dropped and the bond traded at a big discount. The price bottomed out in Jan 2016 when the yields hit a high of 9.5 percent.

“At this point, it meant that if the government were to raise any additional debt, they would have paid coupons of 9.5 percent rather than 6.875 percent they would have enjoyed nine months earlier,” Kiprono explained.

This comes as the government plans to reduce its expenditure.

The revised budget estimates of the national government, currently before the National Assembly, indicate a planned reduction in government expenditure which should continue to ease pressures on domestic borrowing and interest rates.

“The decision to cut the expenditure budget may reduce the pressure of additional borrowings and manage the deficit, however future growth could be negatively impacted if development expenditure is reduced more than the recurrent expenditure,” Kiprono cautioned.

The Central Bank’s Monetary Policy Committee (MPC) has retained its lending rate 11.5 percent with the committee urging commercial banks to reduce operating costs and enhance transparency in the pricing of credit.

READ: Banks credit transparency urged as CBK rate stays at 11.5pc

The MPC has maintained the CBR at 11.5 percent for the last five consecutive meetings on account of stability in the foreign exchange market, improvement in Forex reserves and a narrowing current account deficit.

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