Bonds turnover declines by 24pc on tight liquidity – Business Daily
Nairobi Securities Exchange trading floor. FILE PHOTO | NMG
Bonds turnover at the Nairobi Securities Exchange (NSE) declined by 24.4 percent in the nine months to September on tighter liquidity and reduced demand by banks that have suffered valuation losses due to rising interest rates.
Latest data show investors traded Sh583.63 billion worth of bonds in the period this year compared to Sh771.73 billion in a similar period in 2021.
Analysts tie the drop to over-borrowing by the government to meet it targets and expectation of rising interest rates, which has led to a focus on short-term bonds.
“Liquidity has been tight from previous Central Bank of Kenya’s (CBK) over-borrowing, hence not leaving room for the secondary market. The secondary market has been subdued this year. Yields have also been going up consistently,” said AIB-AXYS senior associate for debt and equity Kenneth Minjire.
Trading investors have been avoiding mark-to-market losses resulting from rising interest rates, which has led to investors holding back on trading and focus on short-term government papers.
“Investors are scared of making losses when a newer auction has a higher interest rate than the previous auction. The consistent auctions have also led to investors driving the secondary market unable to exit the market,’’ Mr Minjire added.
Bonds are preferred as an alternative for underperforming equities, and also as a hedge against global uncertainties affecting returns from most other asset classes.
However, the market has not reflected this despite a dip in the stock market amid the shedding of share prices and foreign capital flight in the wake of rate hikes in the US.
NSE market has recorded a jump in net foreign investor outflows to Sh19.3 billion with equity turnover dropping by 24 percent to 76.9 billion over the period.
The yield curve has been shifting upwards since July 2021 with average yields expected to continue driven by soaring inflation and a rise in Central Bank Rate to 8.25 percent on September 29 from 7.5 percent.
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