Secondary market turnover improved by 38.05 percent in the week to close at KES 8.83Bn. Trading was concentrated on the short-end and long-end of the yield curve with the top five traded bonds accounting for 75.49 percent of the week’s activity.
Most of the turnover was on infrastructure bonds and five-year papers. Notably, bids for the five-year papers came in 15-20bps above the yield curve; an indicator of bargain hunters.
The week under review was also marked with the inauguration ceremony for President Uhuru Kenyatta as he embarks on his second term. Salient in his maiden speech was the emphasis on job creation coupled with value addition mainly in the agriculture sector.
The rubber is now in touch with the road and we anticipate government disbursements towards both Ministries/Departments/Agencies (MDAs) and county governments, whose absorption rate has been lackluster so far, to pick up steam. The Statistics agency released November inflation number at 4.73 percent which has cemented its disinflation trend.
The shilling gained ground in the week to touch fresh lows of 103.00. The boost for the local unit has been mainly triggered by the perceived ease in political risk following the inauguration of President Uhuru’s second term stint.
The dollar is likely to have a boost in the coming sessions as the Tax Cuts and Jobs Act was anticipated to pass through US Senate. Data from central bank shows that usable foreign exchange reserves increased slightly by USD 18Mn to USD 7.10Bn, equivalent to 4.71 import months.
The average interbank rate declined by 57bps to 8.25 percent in the week. Similarly, interbank volumes decreased to KES 87.67Bn in the holiday-shortened week. Tight liquidity condition in the market, attributed to the payment for the November infrastructure bond, led to CBK intervention via repos at an average rate of 10.15 percent.
This Week’s Outlook:
Following the inauguration held in the week, we anticipate government disbursements to gain momentum in the course of the coming week which will boost the liquidity condition. This, in turn, will boost trading in the 3-year to 7-year space where we see some opportunities.
Stanbic Purchasing Managers Index (PMI), a barometer of private sector activity, will be released on Tuesday. The print has been on contraction territory in the last six months, weighed down by the ripple impact of the prolonged electioneering period.