Analysts Expect Subdued Trading in Kenya’s Fixed Market

Kenya’s 2 and 15-year Treasury Bonds Raise Ksh 32bn

The Kenyan secondary market is expected to remain subdued this week after it declined 39.2% last week to Ksh 8.2 billion attributed to the wait-and-see approach adopted by investors ahead of the primary bond auction this week and as clarity surrounding the rate cap emerges.

During the week, the Finance and National Planning Committee of Parliament opposed the proposal by the National Treasury (under the Finance Bill 2019) to have the ceiling on lending rates lifted. 

“To this end, credit growth has stunted below 6.0% in the last two and a half years and may remain muted as appetite for private sector risk remains low, primarily because of the inability to appropriately price risk,” according to Commercial Bank of Africa.

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Liquidity has also been affected by the commercial banks trading continuously in the interbank market in order to meet their CRR requirements for the cycle ending 14th of August 2019.

During the week, the yield on the 91-day paper declined by 6.0 bps to 6.3 percent while the yields in the 182-day and 365-day papers rose by 14.8 and 6.2 bps to 7.1 and 9.6 percent respectively.

Treasury bills auction of August 12 received bids totaling KSh 18.9 billion against an advertised amount of KSh 24.0 billion, representing a performance of 78.6 percent. 

“T-bill subscriptions, although improved from last week, still remain sub-par at 78.6% performance rate,” notes Genghis Capital Analysts.

This month’s Treasury bond auction features the reopening of FXD1/2018/15 and FXD2/2019/15 with
13.67 and 14.63 years to maturity respectively. CBA Analysts expect the yields on the papers to range between
12.40% – 12.50% and 12.50% – 12.60% respectively. “This will be on the back of aggressive investor bidding among
yield-hungry investors and duration play on the long end of the yield curve.”

The auction is scheduled for Wednesday 18th September 2019.

Equities

The market rebounded slightly from last week’s bearish sentiment with the NASI, NSE-20 and NSE-25 gaining 0.7%, 0.5% and 1.0% week on week respectively. 

Activity during the week retreated closing at a lower turnover of KES 1.8Bn compared to a turnover of KES 3.1Bn in the previous week. Trading activity was mainly on the large caps; Safaricom, Barclays, BAT Kenya, Equity Group and EABL. 

The foreign investors accounted for 57.5% of the week’s total activity, compared to 60.8% in the previous week. Foreign investors remained net sellers for the second

subsequent week, posting a net selling position of KES 60.7Mn compared to a net outflow of KES 45.5Mn previously. 

Net buying activity was largely on Safaricom and EABL while net selling activity was on Barclays, Equity Group and BAT Kenya. “We anticipate activity to remain on the index counters with fairly balanced market participation between foreign and local investors.”