Average Interbank Rate Hit 8.4% During The Week

Juma

3 years ago

Liquidity

During the week, liquidity in the money markets continued to tighten, with the average interbank rate increasing to 8.4 percent, from 8.1 percent recorded the previous week, partly attributable to tax remittances that offset government payments.

The average interbank volume traded consequently declined by 19.0 percent to 24.0 billion shillings, from 29.6 billion shillings recorded the previous week.

Eurobonds:

The yields on Eurobonds were on an upward trajectory with the yield on the 10-year Eurobond issued in 2018, increasing the most, having increased by 0.5 percent points to 14.7 percent, from 14.2 percent recorded the previous week.

The rise in the country’s Eurobond yields is mainly on the back of increased concerns about the continued depreciation of the Kenyan shilling, United States dollar shortages currently experienced in the economy, and increased debt servicing concerns with debt service to revenue coming in at 56.4 percent as of March 2023, compared to 54.2 percent recorded in February 2023.

Rates

Rates in the Fixed Income market have remained relatively stable due to the relatively ample liquidity in the money market.

The government is 11.2 percent ahead of its prorated borrowing target of 338.7 billion shillings having borrowed 376.6 billion shillings of the new domestic borrowing target of 425.1 billion shillings as per the March 2023 revised domestic borrowing target for FY’2022/23.

We believe that the projected budget deficit of 5.7 percent is relatively ambitious given the downside risks and deteriorating business environment occasioned by high inflationary pressures.

Further, revenue collections are lagging behind, with total revenue as of March 2023 coming in at 1.4 trillion shillings in the FY’2022/2023, equivalent to 65.9 percent of its revised target of 2.2 trillion shillings and 87.9 percent of the prorated target of 1.6 trillion shillings.

Therefore, we expect a continued upward readjustment of the yield curve in the short and medium term, with the government looking to bridge the fiscal deficit through the domestic market. Owing to this, our view is that investors should be biased towards short-term fixed-income securities to reduce duration risk.