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WEEKLY FIXED INCOME REPORT - WEEK 5

Weekly Wrap:

Secondary market turnover surged 77.19% w/w to a record KES 16.60Bn. The trades were concentrated on the short-to-medium term end of the yield curve together with infrastructure bond papers. Interest on the five-year paper – FXD3/2016/5 - gathered momentum as investors took advantage of the hump created on the short end by the IFB1/2018/15 which has an average term to maturity of 13 years and was issued at an average rate of 12.50%.  The top five traded bonds accounted for 52.79% of the week’s total turnover. CBK opened the January infrastructure bond for a TAP Sale seeking to plug the KES 35Bn deficit. The offer was filled with KES 36.21Bn in the two-day sale period; an indication of the attractiveness of the bond albeit the initial massive rejection of the bids.

USDKES:

The shilling continued its positive run against the dollar; breaching past the 102 level to close at 101.92. The performance has mainly been on account of a weaker dollar. The US Federal Reserve, as widely expected, retained the benchmark rate at 1.25% - 1.50% level though expect inflation to heat up in the year.

Money Market:                                           

The average interbank rate declined 45bps to 5.95% in the week. Interbank volumes increased by KES 6.13Bn to settle at KES 77.88Bn. Liquidity condition improved in the week with the CBK keeping off open market operations.

This Week’s Outlook:

We expect the improved liquidity condition in the market will help support T-Bill auction and the short-end bond trading in the coming week. The Stanbic Bank Kenya PMI for the month of January is expected to be released on Monday.