Bond trading hits two-year high in returns race

The monthly value of bonds traded at the Nairobi Securities Exchange (NSE) hit a two-year high in September as investors sought to secure high-yielding securities issued recently by the government.

NSE data shows the traded turnover for the securities rose to Sh96.2 billion, which was 79 percent higher than August’s turnover of Sh53.9 billion. This was the highest value recorded since September 2021 when a volume of Sh118.2 billion was recorded.

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The volumes rose in the last week of the month as institutional buyers who do quarterly reporting rebalanced their books to improve the value of their portfolios.

This is despite the potential for paper losses on selling due to bond prices falling as yields go up. Analysts said that some investors would have been looking to let go of such securities to mitigate against further value erosion due to the expectation that interest rates will continue rising in the short term.

“The spike in turnover was largely seen in the last week of the month, attributed to those investors holding books for trading purposes. They were letting go of less performing bonds to get those with higher value as they wrapped up for quarter three reporting,” said Ronnie Chokaa, an analyst at Genghis Capital, an investment bank.

Those investors who missed out in the primary and tap sales during the month were also turning to the market for the bond, which was a dual-tranche offer comprising reopened 10-year and two-year papers.

The 10-year offer is paying interest at 17.92 percent, and the two-year at 17.45 percent, making them attractive to investors who are seeking to take advantage of the high interest rate environment to lock in high short term returns.

Infrastructure bonds were also popular with investors in the secondary market, particularly those looking to extend the life of their bond assets.

For market intermediaries, the higher bonds turnover will offer some respite from the lower revenue they are currently taking in from equities trading whose turnover stood at just Sh5.1 billion in September.

In the first half of the year, stockbrokers saw their trading commissions drop by a fifth to Sh717.8 million compared to the corresponding period last year, leaving them even more reliant on advisory fees to protect their bottom line.

Read: Bond market rise bodes well for Kenyan economy

They normally charge a commission of 0.03 percent per bond trade, and up to 1.8 percent for equities, but bonds tend to move much higher volumes. In the nine months to September, the value of bonds sold stood at Sh518.6 billion, which was Sh65 billion lower than the Sh583.6 billion traded in the first six months of 2022.

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