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Kenya Eurobond yields fall, shrugging off protests
When risk perception falls, yields go down as prices go up, showing that investors are demanding a premium to let go of their bonds in the expectation that new issuances of similar tenor would pay less interest.
Secondary market yields on Kenya’s Eurobonds inched downwards last week as foreign investors shrugged off the heightened political risk in the aftermath of protests which hit business activity across the country.
Data from the Central Bank of Kenya (CBK) showed that the yields, which are a measure of the risk perception on Kenyan sovereign debt by foreigners, fell by between 0.1 and 0.2 percent across the six outstanding tranches of Eurobonds that trade on the London and Irish stock exchanges.
The yield on the $1 billion (Sh129 billion) 10-year bond maturing in 2028 declined to 8.31 percent from 8.51 percent the previous week, while the six-year paper maturing in 2031 saw its yield fall to 9.5 percent from 9.7 percent.
The yield on the 12-year bond maturing in 2032 moved from 9.79 percent to 9.67 percent over the period.
In the secondary market, bonds are sold for a premium or discount of their face value — the actual value or cost of the bond at its first issue— with a corresponding yield which goes up when the price falls and vice versa.
These yields are therefore a key indicator of the risk perception placed by investors on Kenya’s sovereign debt, and show the rates at which investors would be willing to lend to the government at a particular point in time.
The bond yields in the secondary market therefore rise when risk sentiment goes up, as prices come down because investors are willing to offer their bonds at a discount to secure buyers.
On the other hand, when risk perception falls, yields go down as prices go up, showing that investors are demanding a premium to let go of their bonds in the expectation that new issuances of similar tenor would pay less interest.
Even though marginal, the decline of the Eurobond yields after last week’s protests stood in contrast to the appreciation seen after last year’s demonstrations which saw protestors storm Parliament, forcing the government to withdraw the Finance Bill 2024.
The yields at the time rose by between 0.5 and 0.8 percentage points to a four-month high in the immediate aftermath of the June 25, 2024 protests amid concerns about the government’s ability to finance its budget without the cancelled Finance Bill.
Similarly, Kenya’s Eurobond yields shot up to a 17-month high in April this year after US President Donald Trump announced trade tariffs on the country’s trading partners, triggering a flight from frontier and emerging markets by investors concerned about potential global recession.
Foreign equities investors also sold off shares in the Nairobi Securities Exchange (NSE) after the June 2024 protests and the Trump tariff announcement, triggering a slide in the market.
However, they remained fairly bullish after the protest last week, recording net inflows of Sh129.4 million, and helping the NSE add Sh106.7 billion in investor wealth to Sh2.4 trillion.
Foreigners normally concentrate their activity at the NSE on large blue chips that are also included on global market indices such as the Morgan Stanley Capital International (MSCI) frontier index and the Financial Times Stock Exchange (FTSE) Russell Index.
