Week in Review: Overall Turnover Eased, Shilling Remained Firm and More Goodies Expected Ahead

Overall turnover eased last week by 42 percent on week-to-week basis mostly attributed to the re-opening of the 2-year and 15-year papers.

Analysts say that they expect the drop in rates witnessed last week – 7 bps on average across the yield curve – to slow down as some of the momentum is lost to the upcoming February primary issue of a 5-year and  15-year tenors.

Liquidity is still the biggest driver of the curve with the KES overnight rate still at below 3 percent. This week, liquidity is expected to tighten as we head into a new CRR cycle.

The shilling ceded ground against the USD, closing Friday at 100.40, but is still expected to trade within range this week (+/- 20bps).

Initial sentiment on the 5-year and 10-year auction suggest expectations lie within 11.30 -11.45 percent and 12.25 – 12.45 percent respectively.

Shilling Vs the Dollar

The local currency remained firm within 100.10 – 100.40 band against the US dollar in the week. Globally, the reserve currency was hoisted up on account of a raft of risk-off sentiment.

Usable foreign exchange reserves held at the central bank increased by USD 96 million to USD 8.23 billion equivalent to 5.39 months of import cover.

Money Market:

The average interbank rate declined by 174bps to 3.01 percent in the week. Although the weekly interbank volume edged up to 19.37 billion shillings, the metric remains at record lows and against the backdrop of high liquidity point out strains experienced by some market players.

The regulator largely kept from intervening in the market during the week. Commercial banks’ excess reserves stood at 23.2 billion shillings in the week.

The Week Ahead

Analysts from Genghis Capital say that they expect the market to be focused on the month’s primary bond issue which features a dual-tranche of 5 years and 10 years’ duration with a total value of 50 billion shillings.

“We anticipate to see an uptick in activity on the 7-year to 10-year of the curve as investors take up positions on declining yields,” said Genghis Capital.

Investors should expect the cyclical liquidity tightness to kick in the week as we move into a new CRR cycle and as corporates prepare to meet their statutory tax obligations.

Market activity during the Friday session remained relatively unchanged compared to Thursday’s trading.

Investors noted increased interest in KPLC especially from the local investors who were on the selling end of the counter, pushing the price down 0.39 percent in the session.

“We also note that KCB and EQUITY have stabilized at current prices with activity expected to pick up in the first weeks of March in anticipation of FY18 results,” said Genghis.

There are offers on Safaricom which could push the price lower this week while we expect EABL’s price to remain stable at current price owing to increased support.