According to the latest data from the Capital Markets Authority, the traded turnover of bonds listed at the Nairobi Securities Exchange (NSE) decreased by 14.9% year-on-year in the first quarter of 2023, reflecting tighter monetary conditions in the country.
Investors traded bonds worth Ksh162.51 billion during the period, which is down from Ksh190.9 billion in the same quarter of last year. This decline has been attributed to slower economic growth, insufficient investment growth, and macroeconomic instability, which have affected the region’s capital markets performance. The rise in inflation has seen the Central Bank tighten policy at an unusually rapid pace amid unfavorable global financial conditions and high debt levels.
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In the secondary bonds market, bond turnover increased by 2.7% from the previous quarter. However, this was a 14.9% year-on-year reduction from a bond turnover of Ksh190.95 billion recorded in the same quarter of the previous year. Fixed-income securities faced upward yield pressure amid rising inflation, and the Central Bank’s unwillingness to take up expensive offers resulted in low-performance levels of recent bonds.
Many investors were unwilling to sell their bonds in the secondary market due to the prospect of taking a hit on prices caused by rising yields, and they opted to hold onto their bonds to avoid actualizing the paper losses.
The decline in bond values was a result of a rise in interest rates in global markets as central banks tried to contain inflation induced by rising oil prices and supply chain disruption due to the Russia-Ukraine war.
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The primary market also recorded below-par performance in the quarter, largely due to investors shying away from longer-dated papers. They anticipated that rates would go up in the short term to reflect higher borrowing needs by the government.
In the period, the government issued eight new bond tranches to the public targeting to raise Ksh190 billion. These included three re-opened bonds, two new issues, and three tap sales.
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