Secondary market turnover surged 62.19 percent in the week to notch 13.62 billion shillings despite coming in the backdrop of May bond announcement to the tune of 40 billion shillings.
The activity was mainly spread out over the medium-to-longer term end of the yield curve with the top five traded bonds accounting for 64.24 percent of the week’s volume. The rather quiet waters that has characterized Corporate bond segment was disturbed with 54.70 million shillings trading of the EABL second tranche bond.
The second reading of the Finance Bill 2017 was tabled in the August house last week. The Legislature finds itself in an unenviable position as it seeks avenue to raise taxes for the ambitious FY2017/18 budget on one hand and on the other hand, manage the cost of living amidst the heated inflationary environment due to the protracted drought.
A stop-gap Supplementary Budget Estimates II is in the offing to cushion the populace against rising costs of essential items; an effect that is likely to:
- dial upwards domestic borrowing
- redirect of funds to cater for the emergency or iii). combination of both.
The shilling ranged in the 103.20-103.35 band against the US dollar in the course of the week with the local unit sustaining pressure from renewed oil importers demand.
The central bank has a sufficient war chest to cushion the shilling albeit data showing foreign exchange reserves narrowing from USD 8.30Bn (5.48 months of import cover) to USD 8.25Bn (5.45 months of import cover).
Average traded yields remained static at 4.60 percent in the week despite weekly market volume expanding to 58.05 billion shillings from 50.96 billion shillings recorded in the prior week.
Liquidity remains high as seen with excess banking reserves elevated at 13.1 billion shillings in the week. Downward shift on liquidity is likely to be on account of the statutory corporate tax payments slated at the tail end of the week. However, the 31.08 billion shillings bond maturity in the coming week will help skew back liquidity upwards.
Re-opening of FXD3/2010/10 & FXD1/2009/15:
This month’s bond issue is to the tune of 40 billion shillings aimed towards budgetary support. Net government borrowing is behind schedule as at end April with 178.58 billion shillings of the targeted 280.11 billion shillings (equivalent to 63.75%) in the current fiscal year. With two months remaining in the current financial year coupled with the anticipated Supplementary budget estimates to tame the runaway essential food costs, the government finds itself with a herculean task of plugging the current budget deficit. Notably, this is the third consecutive double-bond re-opening issuance and it is not entirely lost that the central bank is intent on curbing against aggressive yield bidding.