Bonds turnover at the NSE down as investors opt for State papers

An investor looks at the trading screen at the Nairobi Securities Exchange on April 25, 2019. 

Photo credit: Diana Ngila | Nation Media Group

What you need to know:

  • Secondary market turnover for bonds declined to Sh283.8 billion in six months.
  • Given that other asset classes have been hit by the Covid-19 effects, investors viewed bonds as a safe bet to protect their returns.
  • The benchmark NSE 20 share index was down 27 per cent in the six months to end June at 1,942 points.
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Bonds turnover at the Nairobi Securities Exchange (NSE) fell by 21.8 percent in the first half of 2020 compared to a similar period last year as investors held on to the low-risk government securities as a buffer against poor returns elsewhere in a Covid-19 affected economy.

NSE data shows that the secondary market turnover for bonds declined to Sh283.8 billion in the six month period from Sh363.1 billion last year.

Given that other asset classes such as equities have been hit by the Covid-19 effects, investors viewed bonds as a safe bet to protect their returns and were, therefore, less inclined to sell these assets at the exchange.

 “The decline in secondary bond turnover can be attributed to investors’ preference to hold safe assets at the moment due to the uncertainty in the market affecting the performance of riskier asset classes,” said analysts at Cytonn Investments in a review of the markets for the first half of the year.

YIELD CURVE RATES

The bonds yield curve rates range from 6.2 per cent for the shortest tenor securities (91-day Treasury bill) to 13.1 per cent for bonds of over 20-year tenors.

This contrasts with the equities market, which in the first half of the year recorded a decline of 17 per cent or Sh436 billion in market capitalisation to end June at Sh2.1 trillion.

The benchmark NSE 20 share index was down 27 per cent in the six months to end June at 1,942 points, while the all-inclusive NSE All Share Index fell 17 percent to end the half-year at 137.7 points.

There was also ample demand for new securities floated in the first half of the year, with both Treasury bills and bonds recording oversubscriptions during auctions done by the Central Bank of Kenya. Investors bid a total of Sh917 billion for Treasury bills in the six months, which represented an oversubscription rate of 153 percent, with the CBK taking up Sh551 billion.

On the bonds auctions, Bids stood at Sh415 billion, representing a subscription rate of 120 percent, of which the CBK took up Sh279 billion.

In the second half of the year, the trend is likely to continue, where investors already holding government paper are reluctant to trade it on the secondary market as the uncertainties associated with the Covid-19 pandemic continue to hit the economy.