Interbank Rate Declies As Yields on Bond Remain Unchanged During The Week

The average interbank rate declined to 4.2 percent from 5.5 percent the previous week according to a weekly report released by Cytonn Investments Limited.

The average volumes traded in the interbank market increased by 40.4 percent to 18.4 billion shillings from 13.1 billion shillings the previous week with the increased activity being partly attributed to the mobilization of funds for PAYE remittances.

The decline in the average interbank rate points to improved liquidity, which the Central Bank of Kenya attributed to large banks trading at lower interest rates.

Kenya Eurobonds:

According to Bloomberg, the yield on the 10-Year and 5-year Eurobonds issued in 2014 remained unchanged at 7.4 percent and 4.8 percent from the previous week.

Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 4.0 percent points and 2.2 percent points for the 5-year and 10-year Eurobonds, respectively, an indication of the relatively stable macroeconomic conditions in the country.

Key to note is that these bonds have 0.8-years and 5.8-years to maturity for the 5-year and 10-year, respectively

For the February 2018 Eurobond issue, during the week, the yields on both the 10-year and 30-year Eurobonds increased by 0.1  points to 8.2 percent and 9.1 percent from 8.1 percent and 9.0 percent the previous week, respectively.

Since the issue date, the yields on the 10-year and 30-year Eurobonds have increased by 0.9 percent points and 0.8 percent points, respectively.

Fixed Income Market

Rates in the fixed income market have been on a declining trend, as the government continues to reject expensive bids as it is currently 37.3 percent ahead of its pro-rated borrowing target for the current financial year, having borrowed 86.2 billion shillings against a pro-rated target of 62.7 billion shillings.

The 2018/19 budget had given a domestic borrowing target of 271.9 billion shillings, 8.6 percent lower than the 2017/2018 fiscal year’s target of 297.6 billion, which may result in reduced pressure on domestic borrowing.