Interbank Rate Declined To 5.5% as Eurobond Yields Retracts to 3.6%

Interbank Rate

The average interbank rate declined to 5.5 percent from 6.3 percent recorded the previous week.

According to Cytonn, the decline is an indication of an improvement in liquidity in the money markets with the average volumes traded in the interbank market increasing by 38.7 percent to 18.8 billion shillings from 13.6 billion shillings the previous week.

Liquidity improved as a result of government security payments, with T-bill redemptions of 22.3 billion shillings being paid out.

Eurobond

According to Bloomberg, the yield on the 5-year Eurobond declined by 10 bps to 3.6 percent from 3.7 percent while the yield on the 10-year Eurobond rose by 40 bps to close at 6.3 percent from 5.9 percent respectively the previous week.

Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 5.2 percent points and 3.4 percent points for the 5-year and 10-year Eurobonds, respectively, due to the relatively stable macroeconomic conditions in the country.

The declining Eurobond yields and stable rating by Standard & Poor (S&P) and Fitch Ratings are indications that Kenya’s macroeconomic environment remains stable and hence an attractive investment destination.

During the week, Fitch Ratings affirmed Kenya’s long-term foreign and local currency Issuer Default Rating (IDR) at ‘B+’, revising its outlook to “stable” from “negative” previously, and affirmed the short-term foreign and local currency IDR at ‘B’. This is good because, with the issue of Kenya’s 3rd Eurobond planned for March 2018, a stable outlook can serve to ensure the government obtains the funds at a cheaper rate.

However, concerns from Moody’s, the International Monetary Fund (IMF), World Bank and most recently, the African Development Bank (AfDB), around Kenya’s rising debt to GDP levels may see Kenya receive a downgraded sovereign credit rating if high debt levels persist.