Investors shun longer-dated bonds amid global economic uncertainty

Friday, July 29th, 2022 09:30 | By
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Nairobi Securities Exchange (NSE). PHOTO/NSE

Investors in Kenya’s bond market have started shunning long-term bonds in preference for short-term debt instruments over rising risk perception.

Kenya has come under pressure over reducing access to gross external financing requirements due to dwindling remittances, increased Eurobonds yields and poor performance in long-term bond auctions.

“As confirmed by the slumping performance rates in the auctions, the investor posture towards treasury bonds is weak. Earlier this month, a tap sale on an infrastructure bond, IFB1/2022/18, registered a 32 per cent performance rate,” said Mwango Capital, a financial research firm.

In the bond market last week, investors piled in on the 91-day and the 182-day papers, with accepted bids coming in at Sh13.4 billion and Sh14.5 billion out of an offer of Sh4 billion and Sh10 billion, respectively.

Short-term securities

Accepted bids on the 364-day paper were Sh2.8 billion out of the Sh10 billion target. Investors have recently been keeping off longer-dated papers in favour of short-term securities.

The 91-day yield curve rose the most across the three papers compared to the last auction, underscoring the shift in time preferences for investors in the domestic public debt markets in the recent issues.

In the recent issues of Treasury bonds by the Central Bank, the performance rate for re-opened 15-year Treasury bonds issued in 2013 and 2015 came in at 26 per cent, with investors placing bids worth Sh10.5 billion against an Sh40 billion advertised amount. Kenya was ranked the sixth most likely country to default on external loans due to a number of issues including high Eurobond interest rates, and high public debt among others.

There is also concern over the expected rise in US interest rates this week which could see the Kenya shilling weaken further as investors sell local assets.

Federal Reserve officials have just raised interest rates by 75 basis points for the second straight month and Chair Jerome Powell said a similar move was possible again, rejecting speculation that the US economy is in recession.

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