Yields on Kenyan Eurobonds moved lower last week amid the start of global rate cuts that have served as a prelude to a drop off in the return earned from sovereign debt instruments in the international capital markets.
All six of Kenya’s listed Eurobonds saw their return edge lower by between 0.38 and 0.79 percent last week as the US Federal Reserve cut interest rates for the first time in four years.
The 10-year Eurobond, which matures in February 2028, marked the largest decline at 0.79 percent to end the week with the paper’s yield falling to 9.218 percent from 10.013 percent previously.
Five of Kenya’s six Eurobond papers are now trading in single-digit territory except for the 30-year paper maturing in 2048, which also saw its yield drop by 0.38 percent in the same period to 10.344 percent from 10.732 percent previously.
The downtrend in Kenya Eurobond yields mimics the direction of other sovereign papers, including the US five and ten-year Treasury bonds.
Interest rate cuts in developed economies such as the US are expected to make papers in emerging and frontier economies attractive on rate differentials, improving their underlying prices while reducing the volatility on yields.
Yields usually have an opposite effect to prices where a lower yield usually results in a contrasting higher price.
Kenyan Eurobonds have seen a calm 2024 with yields stable for most of the year following February’s partial buyback of Kenya’s debut Eurobond, which calmed investor nerves on the probability of a sovereign default.
Yields on Kenya’s Eurobonds have been primarily driven by news specific to the country, including the availability of foreign exchange to meet external liabilities.
The yields are expected to remain relatively stable following the restoration of calm with Kenya, for instance, successfully accessing the international capital markets to undertake the partial buyback in February after a nearly three-year hiatus forced largely by high interest rates.
“We expect Kenya’s international yields to remain relatively stable, oscillating in the single-digit territory over the medium-term,” analysts at AIB-AXYs Africa said in a note yesterday.
Kenya has recently focused on concessional sources such as the World Bank and the International Monetary Fund to meet its external funding requirements even as the international capital markets open again for peers.
The National Treasury nevertheless stands ready to leverage the market to conduct liability-management operations such as February’s partial Eurobond redemption.
