Low Eurobond yields boon for the Treasury

Secondary market yields on Kenya’s Eurobonds have fallen to the lowest level since the various tranches were issued, opening a new window for the country to raid the international markets for budget funding at cheaper cost.

The bonds, which trade on the London and Irish stock exchanges, this week registered bid yields of between 4.84 percent and 7.66 percent on the shortest (five years) and longest (28 years) ends of the yield curve.

The $2 billion (Sh200 billion) 10-year bond taken in 2014 is trading at its lowest ever yield of 4.84 percent, although with just four-and-a-half years to maturity this is effectively a five-year paper for someone buying it in the secondary market.

Since the beginning of the year, the yield on the debut bond has nearly halved, having fallen by 3.55 percentage points from 8.39 percent.

“In the international market, yields on Kenya’s seven-year (2026), 10-year (2024), 10-year (2028), 12-year (2031) and 30-year (2048) Eurobonds decreased by 32.9, 18.2, 22.6, 20.0 and 21.5 basis points, respectively. The yields on the 10-year Eurobonds for Ghana and Angola also declined,” said CBK in its latest weekly bulletin.

The seven-year $900 million (Sh90.6 billion) bond issued in May this year with a coupon of seven percent is trading at 5.64 percent, while the 12-year $1.2 billion (Sh120.8 billion) paper issued at the same time at eight percent is now trading at 6.85 percent.

The bond issued in February 2018 in two equal tranches of $1 billion (Sh100.7 billion) each is trading at a yield of 5.92 percent for the 10-year paper and 7.66 percent for the 30-year tranche. They had yields of 9.08 percent and 9.84 percent respectively at the beginning of 2019.

For the Treasury, low secondary market yields signal that investors are attaching lower risk premium on the country.

These rates signal the interest rate that investors would be looking to demand should the country go into the debt market today.

The government has a budget deficit of Sh640.2 billion to fill in the current fiscal year, through Sh331.3 billion worth of foreign financing and Sh305.7 billion in the domestic debt.

On the external financing bit, the Treasury is eyeing Sh231.1 billion worth of commercial loans, Sh47.6 billion in project loans from development partners and Sh2 billion in programme loans but is also going to make repayments worth Sh131.4 billion.