The average interbank rate rose to 10.2 percent from 7.5 percent the previous week, hitting a high of 11.3 percent on 14th December 2018, the highest recorded since 30th October 2015.
Average volumes traded in the interbank market rose by 18.1 percent to 15.4 billion shillings from 13.0 billion shillings the previous week.
The higher interbank rate points to tighter liquidity, partly attributed to banks shoring up their reserves to meet the 5.25 percent cash reserve requirement (CRR), ahead of the end of the CRR cycle on December 14th.
Kenya Eurobonds:
According to Bloomberg, the yields on the 5-year and 10-year Eurobonds issued in 2014 declined by 0.3 percent and 0.2 percentage points to 4.9 percent and 7.9 percent, from 5.2 percent and 8.1 percent recorded the previous week.
Since the mid-January 2016 peak, yields on the Kenyan Eurobonds have declined by 1.8 percentage points and 3.9 percentage points for the 10-year and 5-year Eurobonds, respectively, an indication of the relatively stable macroeconomic conditions in the country.
Key to note is that these bonds have 0.5-years and 5.5-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 declined by 0.4 percent and 0.1 percentage points, to 8.5 and 9.5 percent from 8.9 and 9.6 percent respectively.
Since the issue date, the yields on the 10-year and 30-year Eurobonds have both increased by 1.3% and 1.2% points, respectively.
Rates
Rates in the fixed income market have been on a declining trend, as the government continues to reject expensive bids, as it is currently 15.0 percent behind its pro-rated domestic borrowing target for the current financial year, having borrowed 111.0 billion shillings against a pro-rated target of 130.7 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 shillings which may result in reduced pressure on domestic borrowing.
With the rate cap still in place, we maintain our expectation of stability in the interest rate environment.