The Weekly Wrap: Secondary Turnover Jumps By 66.19%

Secondary market turnover jumped 66.19 percent w/w to close at 17.75 billion shillings in the week uplifted by medium-term papers and long-end infrastructure bond.

There was marked interest on the FXD2/2013/15yr with yields trending down from an average 12.30 percent recorded in the previous week to lows of 11.83 percent this week.

The foreign desk elevated the interest on IFB1/2018/20yr whose yield ranged between 11.35 percent and 12.11 percent.

The central bank re-opened FXD1/2019/2yr and FXD1/2019/15yr seeking 12 billion shillings.

“We expect price undercutting mainly on the 2-yr tenor which had declined to 10.40 percent levels although secondary market activity was limited on account of the announcement (re-opening),” said analysts from Genghis Capital.

The Dollar Vs the Shilling

The local currency firmed up against the global reserve currency, closing at 100.38 on muted end-month dollar demand from importers and energy sector.

Although US non-farm payroll data hit an 11-month high of 304,000, the wage inflation rose a marginal 0.10% which supports the gradual fed rate increase.

Usable foreign exchange reserves held at the central bank increased by USD 60 million to USD 8.14 billion; equivalent to 5.33 months of import cover.
Money Market:

The average interbank rate increased by 153bps to 4.75 percent in the week. The uptick in the average money market rate against the high liquidity cements the market segmentation which has tilted against Tier III players.

This was reflected by the drop in weekly interbank volume from KES 74.15Bn to KES 12.05Bn. The regulator largely kept from intervening in the market during the week. Commercial banks’ excess reserves stood at 23.9 billion shillings in the week.

This Week’s Outlook:
“We expect the market to be characterized by investors angling the re-opened primary bonds, FXD1/2019/2 and FXD1/2019/15, whose sale period closes on Tuesday,” said Genghis Capital.

The analysts added that they expect yields to average 10.50 – 10.65 percent on the 2-year tenor while average 12.70 – 12.80 percent on the 15-year tenor.

“We see attractive entry positions on infrastructure bonds which may be appealing for offshore investors”