Kenyan bond market soars while equities retreat

The Kenyan financial markets have witnessed a dichotomy in performance recently, with equities experiencing a downturn while the bond market flourishes. The bond auction exceeded its target by 25.67 per cent, showcasing robust investor demand, particularly for medium-dated Infrastructure Bond (IFB) issues. Caleb Mugendi, Investment Manager at Genghis Capital Asset Management, shed light on the factors fueling this trend in a recent interview with CNBC Africa. Mugendi explained that the auction, seeking KES 20 billion, garnered bids worth 35 billion, with significant interest in the five-year FXD1 2023 bonds due to elevated yields compared to the prevailing market rates. The re-opening of previously issued bonds with higher yields has captivated investors seeking lucrative returns amidst escalating geopolitical tensions and uncertainties stemming from the finance bill 2024. The preference for medium-dated IFB issues is driven by the impending taxation on new infrastructure bonds effective July 1, prompting investors to capitalize on the current tax-exempt offerings. With the imminent T-bill auctions, Mugendi anticipates sustained investor participation, supported by elevated yields and a cautious market stance influenced by ongoing fiscal consolidation efforts and political unrest. Equities, facing pressure amid the prevailing uncertainties, are expected to rebound upon resolution of the current challenges, particularly in sectors like banking that exhibit strong fundamentals. Despite the turbulence in the markets, Mugendi remains optimistic about the potential for a market recovery once the prevailing risks subside, presenting opportunities for strategic investments and portfolio optimization.