Last week witnessed a favourable liquidity in the markets as a result of government payments as well as the effect emanating from the ongoing demonetization process.
The average interbank rate rose to 3.2 percent last week, from 2.5 percent the previous week. This was attributed to banks trading cautiously in the interbank in order to meet their cycle that is set to end on August 14.
The average volumes traded in the interbank market dropped by 28.7 percent to 6.2 billion shillings from 8.7 billion shillings the previous week.
Performance of Kenyan Eurobonds
Yields on the 10-year Eurobond issued in 2014 dropped by 0.1 percentage points to 5.2 percent from 5.3 percent the previous week.
The continued declined in the yields of the bond has been attributed to the increased demand for emerging market fixed-income securities in the wake of the pause by the US Fed on its 3-year cycle.
For the Eurobond issued on February 2018, the yields for both the 10-year and 30-year Eurobonds have remained stable at 6.7 and 8.0 percent.
The newly issued dual-tranche Eurobond with 7-years and 12-years tenor are priced at 7 percent for the 7-year tenor and 8 percent for the 12-year tenor.
The yields for the 7-year bond remained unchanged at 6.3 percent. The yield on the 12-year bond rose marginally by 0.1 percent to 7.4 from 7.3 percent the previous week.
The Demonetization Process
The ongoing demonetization process has had an effect on the performance of the bonds as well as the interbank rate.
Kenyans have been in a rush to exchange the old currency notes with the new generational notes in an exercise that is expected to come to an end at the end of September 2019.
The Central Bank of Kenya (CBK) insists that by August 1, the current 1,000 banknotes will cease to be operational with the new generational notes taking over.
The denominations of 50, 100, 200 and 500 will continue to be used alongside the new ones.