In a normal yield curve, investors who purchase longer-dated government securities earn more returns to compensate them for investing longer, and investment shields against the rising inflation rate in the economy. This was how the Kenyan government securities were at the start of the year 2020.
Read more: Treasury Shifts from Issuing Long-Term Bonds Towards Shorter-Dated Bonds
However, the yield curve for Kenya government securities has changed its shape and now has taken a humped shape. This means that investors who have invested in the medium term are earning more return than those who invested in short-term and long-term securities.
For example, the yield on a 5-year bond is 16.6%, which is higher compared to a 1-year bond and 20-year bond, which have yields of 12.7% and 14.6%, respectively, as of 21st July 2023, therefore taking a humped shape.
Read more: Yields on Government Securities Breached 16.0% in the Primary Market
The cause of this performance is due to the government focusing more on issuing short to medium-term government securities. Additionally, investor preference for shorter-dated securities has remained persistent, forcing the government to shift its focus from issuing longer-dated securities.
The humped shape is an indication of the period of uncertainty in the government securities market due to the economy being in the transition phase from a period of growth to a slowdown or vice versa.
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