Kenya: Eurobond yields fall 51%

Kenya's financial market is experiencing a significant shift as the yields on the 10-year Eurobond maturing in 2024 have seen a drastic decrease of 50.8%, dropping to 11% for the week ending on February 2 from a peak of 22% on July 14th. This decline in yields puts Kenya in a favorable position for external commercial financing after a spike in yields deterred planned debt issuances in the previous fiscal year. Arnold Ochieng Oluoch, a Financial Analyst at Mwango Capital, shed light on the key market conditions that contributed to this positive transformation. Oluoch mentioned that factors such as the interest rate environment, market sentiment, investor confidence, and the overall economic outlook played crucial roles in driving the decrease in Eurobond yields. He highlighted the Central Bank's decision to maintain the 8.75% rate, which boosted investor confidence and demand for bonds. Moreover, the stability and growth prospects of the yields and a positive economic outlook for 2023, with consecutive drops in inflation, also influenced the market positively. The reduced yields provide Kenya with enhanced opportunities for external financing, albeit considerations like the purpose of financing, terms and conditions, and the country's economic situation. With the Kenyan shilling facing depreciation, the government needs to carefully weigh its options to manage debt servicing costs effectively. Oluoch also commented on President William Ruto's administration's focus on reducing debt collection and garnering revenues from international sources. The new administration will need to implement strategies to address external debt servicing, considering the challenges faced in the domestic debt market where shorter-term papers are overshadowing longer-term debts, indicating investor concerns. Despite the anticipated reduction in yields and a positive outlook for the bond market in the year ahead, the fixed income securities on the Nairobi Securities Exchange (NSE) have seen a decline in the last six months. Infrastructure bonds have faced challenges in meeting investor demands for high interest rates, leading to uncertainties in market performance. Oluoch predicts a balanced market with institutional investors driving activity while retail investors remain cautious. Regarding stock activities, light cap stocks such as Safaricom and East African Breweries Limited have witnessed increased subscriptions, with Safaricom experiencing a share price surge and EABL continuing to pay dividends despite the tough tax and economic environment. The market response to looming recession fears remains dynamic, with indicators pointing towards a mixed sentiment among investors. While the overall market conditions are poised to remain stable, the performance of individual counters reflects a blend of optimism and caution, mirroring the diverse economic landscape in Kenya.