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WEEKLY FIXED INCOME REPORT - WEEK 6

Weekly Wrap:

Secondary market turnover edged up 12.53% w/w to KES 18.69Bn; sustaining the recent trend of elevated bond volumes. The IFB1/2018/15Yr paper accounted for 43.63% of the week’s turnover and was mainly driven by the foreign desk. The increased foreign flows also helped cushion the shilling in the course of the week. Demand was heavy at the long-end of the curve and also the medium-term space received healthy activity in the week. According to a Bloomberg news article, Treasury is seeking to raise between USD 1.5Bn – USD 3Bn in international sovereign bonds. The government is intent on diversifying its financing sources and the exposure into the foreign capital markets is one of the avenues. The commercial financing quota in the current fiscal year stands at KES 250Bn (~ USD 2.5Bn) but Treasury had received KES 10.76Bn as at December 2017. At this point, precise details are still scanty on the upcoming Eurobond issuances but the yields on the two Eurobond issues offer favourable entry positions.

USDKES:

The shilling maintained its positive momentum against the dollar in the week to close at 100.80 level. The performance was buoyed by portfolio inflows despite the dollar index gaining 1.25% w/w against a basket of trading currencies.

Money Market:                                             

The average interbank rate declined 62bps to 5.33% in the week; an indication of improved liquidity condition in the market. Interbank volumes increased by KES 4.31Bn to settle at KES 82.19Bn.

This Week’s Outlook:

The apex bank intends to raise KES 40Bn in February bond issue and has announced the re-opening of two 15-year tenor papers – FXD1/2010/15 & FXD2/2013/15 – which have effective maturities of 7.06 and 10.15 years, respectively. We are likely to see secondary market turnover ease in the week as focus is shifted to the two papers on the primary. We are also likely to see an upward shift in average interbank rate as we move into a new CRR cycle on Thursday.