As Kenya’s $2 billion Eurobond approaches maturity, the secondary market witnesses a surge in volatility. Traded on the Irish stock market, the 10-year sovereign bond, launched in June 2014, has experienced weekly yield fluctuations exceeding a percentage point since November. In contrast, other Eurobond issues maturing between 2027 and 2048 have shown more modest movements, ranging from 0.1 to 0.3 percentage points weekly.
Bond prices and yields, known for their inverse relationship, highlight the dynamics of the secondary market where bonds are traded at a premium or discount to their face value.
President William Ruto, in his November 9 State of the Nation address, confirmed the government’s commitment to settling the first $300 million installment of the 2014 bond this month. Following this announcement, the traded yield, which had risen by 1.4 percentage points to 15.46 percent, reversed, falling to 12.9 percent over the next two weeks.
Analysts interpret this decline as a response to increased demand triggered by the buyback announcement, indicating potential profits for participants.
Economist Churchill Ogutu from IC Asset Managers (Mauritius) anticipates a premium for bondholders to participate in the buyback. He draws parallels with a recent similar transaction in Ghana, emphasizing that the buyback, settling over 10 percent of the total bond value, is likely to occur through a tender offer.
Despite uncertainties surrounding the buyback’s finer details and the bond’s susceptibility to short-term emerging and frontier debt sentiments, market sentiment has improved. A recent 1.21 percentage point rise in yield, attributed to growing risk aversion to frontier and emerging bonds amid a globally strengthening dollar, contrasts with the overall positive outlook. The government’s outlined buyback plan and assurances of its ability to service external debt obligations, supported by incoming dollar supply from the World Bank and the International Monetary Fund, contribute to the improved sentiment.
By: Montel Kamau
Serrari Financial Analyst
4th December, 2023
