Kenya fixed income tops Africa yields
Investors in Kenya’s fixed income market are earning higher returns in Africa on account of a widening budget deficit, analysts say.
Treasury bill yields reports show that bond market investors are having a party in Kenya, Ghana and Uganda but those in Nigeria and South Africa are getting near zero earnings. The analysts say this is due to Kenya’s relatively poor financial health.
“If you look at Kenya’s budget deficit, you realise the gap between income and expenditure is large so that means we have to borrow at a higher cost,” said John Kirimi, former director at Sterling Capital.
Domesti debt
Kirimi who is now an independent analyst said Eurobond exposure in Kenya and Ghana also increases risk since it is much easier to manage domestic and bilateral debt.
T-bills auction result from Central Bank of Kenya (CBK) shows that interest rate on the 91-day government security was 6.70 per cent as of November 26, while the 182-day and 364-day bills reported interest rates of 7.15 per cent and 8.09 per cent, respectively.
Banks are returning 7 per cent on fixed deposit accounts in Kenya well above the current inflation rate of 4.8 per cent.
“It has a lot to do with the risk exposure, countries with high returns present more risk to the investors,” said George Bodo, Chief executive officer of Call Street Capital.
Pandemic shocks
This means that investors from countries like Nigeria and South Africa can tap yields in Kenya, Uganda and Ghana which have been overlooked by investors from the developed world after Covid-19 shocks turned out to be lower than they had expected.
Even as the economic fallout continues, signs of recovery are beginning to emerge, driven by a few sectors inclduing agroculture and the manufacturing sector.
According to World Bank reports Kenya has one of the most elevated risk levels in the region.
Kenya’s budget deficit is currently over 7 per cent and is expected to grow higher due to Covid-19 induced borrowing and low tax collections after the country realigned taxes to cushion citizens.
This means that Kenyan banks will continue to earn handsome returns since they rely on the easy revenues to cushion themselves as loan defaults escalate.
Average T-bills rate in the sub-Saharan Africa countries stood at 11.10 per cent as of November 26.
“If you look at countries like Zambia, they are paying a lot more, but investors are avoiding them due to high risk,” said Bodo.
However, according to the Central Bank of Nigeria, if you buy T-bills for 91 to 364 days you get nothing.
But with an inflation rate that accelerated to 14.23 per cent in October, the real return on T-bills in Nigeria is -14.08 per cent.
Primary market
In Uganda, the 91-day bill is returning 7 per cent while the 182-day paper is earning 9 per cent in the primary market. The 364-day paper will earn you a cool 12 per cent.
According to data by the Bank of Ghana (BoG), the interest rate on Ghana’s 91-day T-bills is the highest at 14.06 per cent while the 182-day maturity and 364-day bill were 14.12 per cent and 16.97 percent, respectively.
Zambia, however, pays investors more than any country on the continent to borrow money.
The 91-day paper earns 14-per cent while the 364-day bill returns an exorbitant 24 per cent.
Zambia’s announcement that it would default on debt has made investors jittery.
