Secondary Market Turnover Declines By 3.11 Percent During the Week

Secondary market turnover declined a marginal 3.11 percent in the week posting 10.52 billion shillings. Trading activity was largely on the long-end of the yield curve with the top five traded bonds accounting for 66.91 percent of the week’s total activity.

Heavy bidding on the infrastructure bonds pushed the yields upwards on its on-the-run issues – IFB1/2016/15Yr and IFB1/2017/12Yr bonds. Ahead of the 4.85 billion shillings second tranche M-Akiba issuance later this month, data indicate that the premier mobile-based bond has hitherto ticked 5.78 million shillings in turnover.

Last minute efforts, midwived by a mediation committee comprising members of both legislative houses, led to a deal allocating county governments 302 billion shillings in the next fiscal year.

The shilling traded in the 103.30 – 103.70 range against the US dollar in the week.  The pressure on the local currency was on increased dollar demand by oil importers with central bank lending support to the local unit on Friday’s session.

The US Federal Open Market Committee meeting as widely expected dialed up the benchmark rate by 25bps with forwarding rate guidance hinting another rate hike in 2H17. Data indicate foreign reserves held at the main bank edged higher by USD 15Mn to USD 8.22Bn; representing 5.43 months of import cover.

Average traded yields during the week declined 80bps to average 2.77 percent touching fresh lows of 1.95 percent with volume traded advancing 20.67 billion shillings to 69.07 billion shillings. The lower average interbank rate marks the improved liquidity conditions in the banking sector; salient with higher deposit growth amidst muted lending. Q1 data for listed banks – with the exception of I&M Bank – indicate 5.30 percent q/q deposit growth whilst loan growth was muted at 0.30% q/q. Notably, the end of the CRR cycle ending 14^th June witnessed banking sector’s excess reserves sitting at 11.5 billion shillings. As a result of the high market liquidity, the central bank sat out of open market operations in the course of the week.

The current June primary comes at a time when the government is under no pressure to meet its borrowing target albeit the 18.75 billion shillings bond maturity next Monday. The coupon rate of 12.50 percent will be of high appeal to the longer-term investors such as fund managers and insurance managers. With an effective tenor of 4.96years, we are also seeing banks attracted to this issue.