The Weekly Review: Income Market Turnover Falls To Ksh 10Bn

Secondary fixed income market turnover declined to 10.0 billion shillings (-12.57 percent w/w). The highlight of the week was the February bond auction results.

Of the 50.0 billion shillings on offer, the government received bids worth 19.5 billion and accepted bids worth 16.7 billion, resulting in a 39.09 percent performance rate.

As anticipated, investors were aggressive with their bidding. The market-weighted average rate for FXD1/2017/010 (4.5 years) and FXD1/2023/010(10.0 years) came in at 13.897 percent and 14.217 percent, respectively.

“The weighted average rate of accepted bids came in line with our bidding ranges of 13.85 – 13.95 percent and 14.05 – 14.25 percent for FXD1/2017/010 (4.5 years) and FXD1/2023/010(10.0 years) at 13.875 percent and 14.151 percent respectively,” said Genghis Capital.

Discount securities recorded a performance rate of 187.09 percent, down from 208.85 percent last week – as investor focus shifted to the February bond auction.

The 91-day T-Bill registered an oversubscription in the week. Overall, T-Bill yields moved up an average of 0.039 percent w/w across all papers.

In the Eurobond segment, credit conditions tightened marginally, with the 10-year 2024 paper’s yield coming in at 10.800 percent (+15bps w/w) on 9th February 2023.

Market liquidity tightened in the week ended 10th February 2023 with the average interbank rate coming in at 6.50 percent (+5bps w/w).

In other news:

The government appears to be on a contractionary fiscal policy trend, in a bid to consolidate fiscal spending that saw Kenya’s public debt edge closer to the debt-ceiling cap of 10 trillion shillings.

Notably, recurrent spending is set to rise by 6.6 percent, while development expenditure allocation declined by 14.9 percent. Debt service costs (inclusive of redemptions) are set to decline by 2.3 percent.

In a subsequent press release, the National Treasury asserted that the government’s intent of effecting austerity measures to the tune of 300 billion shillings in budgetary cuts was attained – resulting in a drop in our budget deficit from 6.2 to 5.7 percent of GDP.

“Overall, we expect the revised budget estimates to shrink the budget multiplier on the back of declined capital expenditure – thus dimming real GDP growth prospects,” added Genghis Capital in their report.

Monetary Policy

“In accordance with our January 2023 Pre-MPC outlook note, the Monetary Policy Committee met and maintained the benchmark rate at 8.75 percent.”

This was on the back of softening inflation as inflation slunk lower to 9.0% in January 2023. The MPC noted that the effect of the current policy stance was still transmitted in the economy and should therefore be given time to realize its full effect.

“We remain however concerned about its impact via the exchange-rate channel as the Kenya shilling continues on a pacier depreciation trend largely on the back of stickier interest-rate differentials.”

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