Yields on Kenyan Eurobonds have fallen to single-digit territory over the past quarter, pointing to lower costs on new issuances at a time when the government plans fresh operations to manage public debt.
The lower risk profile implies that Kenya would likely pay less to issue new debt in the international market than was the case prior, bolstering the Treasury’s plan to undertake operations to manage its external public debt stock through initiatives, including early buybacks.
According to market data, yields on the 10-year Eurobond maturing in 2028 have fallen the most by 2.1958 percentage points between the end of June and September 25.
Yields on Eurobonds maturing between 2031 and 2048 have, meanwhile, declined by between 1.1965 and 1.4869 percentage points in the same period.
Eurobond yields have, however, slightly picked up in the last two weeks but remain in the single-digit territory. The 10-year Eurobond traded on Thursday last week at a yield of 6.0612 percent.
Analysts say Kenya now has improved market access while attributing the falling yields to improvements in the fiscal framework, official foreign exchange reserves and currency stability.
Investors are now demanding a lower return to hold Kenya’s debt, implying a favourable environment for new external debt issuances at lower costs.
Kenya has issued two new Eurobonds in the last two years, affirming its ability to access the market, but the issuances have been undertaken at relatively higher costs.
David Rogovic, Vice President and Senior Credit Officer at Moody’s Ratings, says Kenya has earned positive credit factors, which are reflected in the Eurobond yields/spreads.
“Kenya has improved market access, and we have seen improvements in the fiscal, growth in reserves and a stable currency.
“These are positive credit factors which are being reflected in the Eurobond yields, which make it more attractive to issue and push out the maturity profile of external debt,” he said.
In February last year, Kenya executed a Eurobond buyback, refinancing Sh193.8 billion ($1.5 billion), which was equivalent to 75 percent of the Sh258.4 billion ($2 billion) Eurobond that was due in June 2024.
Debt exchanges
This year in February, Kenya issued another Eurobond with the same ticket size, allowing the country to partially buy back a sovereign bond, which was set to have maturities through to May 2027.
The Treasury has indicated plans to sustain the strategy known as liability management operations (LMOs), which includes buybacks, switches and debt exchanges.
Kenya is, for instance, in talks with China for a currency conversion where debt used to fund the standard gauge railway (SGR), currently denominated in US dollars, will be converted into yuan debt.
“In managing external debt, the government will prioritise non-market-based measures including debt swap arrangements, which restructure existing obligations without creating new debt, thereby alleviating medium-term fiscal pressures,” the Treasury said in its fiscal year 2025-26 annual borrowing plan.
Kenya does not have immediate pressure from sizable external maturities until February 2028, when the Treasury must make a Sh129.2 billion ($1 billion) one-off Eurobond payment.
The lack of immediate maturity implies that Kenya can wait longer before returning to the market if it sees market conditions improving further.
“The fact that there are no immediate maturities means that authorities can always wait longer for when they feel that yields will be attractive to issue at. This means that Kenya has greater flexibility,” added Mr Rogovic.
Principal Secretary to the National Treasury Chris Kiptoo argues that Kenya’s improving debt affordability points to the country’s regained credibility in the international capital markets.
“When investors demand fewer basis points to hold Kenyan debt, they are effectively saying; we believe in your direction, your policies and your discipline,” he said.
