Yields on Kenyan Eurobonds Rise During The Week, A Reason To Worry?

The yields on the 5-year and 10-year Eurobonds issued in 2014 both increased by 0.5 and 0.4 percentage points to 5.3 percent and 7.9 percent from 4.8 percent and 7.5 percent recorded the previous week respectively.

Since the mid-January 2016 peak, yields on the Kenyan Eurobonds have declined by 1.7 percentage points and 3.5 percentage points for the 10-year and 5-year Eurobonds, an indication of the relatively stable macroeconomic conditions in the country.

For the February 2018 Eurobond issue, during the week, the yields on both the 10-year and 30-year Eurobonds rose by 0.5 and 0.4 percentage points to 8.7 and 9.6 percent from 8.2 and 9.2 percent the previous week respectively.

Since the issue date, the yields on the 10-year and 30-year Eurobonds have both increased by 1.4 and 1.3 percentage points respectively.

The yields on all the Eurobonds have been on the rise in recent weeks.  The rising yield on all the Eurobonds signals higher country risk perception by investors, partly attributed to International Monetary Fund (IMF) raising the risk of Kenya’s debt distress from low to moderate on October, resulting in investors demanding a higher return for the risk.

In November, the yields on the 5-year and 10-year Eurobonds have both increased by 0.5 percentage points while the yields on the 10-year and 30-year 2018 issues have increased by 0.6 percentage points and 0.5 percentage points respectively.

The increment in the Federal Rate twice this year, currently at 2.0 – 2.25 percent has also led to a market correction in Eurobond yields in the emerging markets with the 2014 Eurobond issues having increased by 1.9 percentage points and 2.3 percentage points for the 5-year and 10-year 2014 Eurobond issues respectively.