Eurobond yield decline opens doors for debt

Investors in the international debt market have significantly lowered their risk rating of Kenyan bonds, opening room for the Treasury to borrow more aggressively at friendlier price.

Yields on Kenya’s outstanding Eurobonds have come down by as much as three percentage points in the past seven months, helped in part by the improved economic growth in 2018 and lower political risk.

Economists at Commercial Bank of Africa (CBA) say yields on the bonds could decline further should the outlook for global growth deteriorate further, which would push central banks around the globe to adopt more accommodative monetary policies.

“The decline in yields coupled with a fairly stable domestic exchange rate and the need to crowd in the private sector could reinforce the case for increased bias towards the external markets for deficit financing,” said CBA in a fixed income report.

“Should conditions in external capital markets improve further, the scale may be rebalanced in favour of external deficit financing.”

Kenya’s Eurobonds are listed on the London and Irish stock markets.

The yield on Kenya’s 10-year Eurobond maturing in 2024 has come down to 5.6 percent from 8.7 percent of last November.

The paper is effectively a five-year tenor taking into account the time remaining to maturity, hence the yield would effectively be the pricing guide for a five-year Eurobond should Kenya opt to sell one.

On the 10-year paper maturing in 2028, the yield has dropped from 9.38 percent in November to 6.83 percent, while the 30-year paper maturing in 2048 has a secondary market yield of 7.98 percent compared to 10.28 percent seven months ago.