NSE bond trade slumps 25pc amid tighter liquidity

The value of bonds traded in the secondary market of the NSE fell by a quarter in November compared to the previous month, with tight liquidity in the money market limiting activity in the segment.

NSE data shows that investors traded bonds worth Sh38 billion last month, compared to Sh50.6 billion in October.

Liquidity in the market progressively tightened during the month as Central Bank mopped up currency to support the shilling that experienced increased volatility against the dollar.

The interbank rate as a result rose from two per cent at the beginning of November to 6.2 per cent by the end of the month.

Valuations of bonds at the market, however, remained relatively stable—along with the yields—keeping the bond market one of the better performing investment classes for the year.

“According to the FTSE NSE Bond Index, Treasury bonds listed at the Nairobi Securities Exchange (NSE) gained by one per cent during the month, bringing the year-to-date performance to 14.6 per cent,” said Cytonn Investments in its November monthly markets report. In the primary bonds and Treasury bills market, performance was also sub-par during the month due to the liquidity constraints and continued rejection of expensive bids by CBK, which is keen not to distort the yield curve.

The Sh50 billion, 20-year infrastructure bond on sale last month raised a total of Sh36.3 billion—a 72.6 per cent performance rate— in both the initial and tap sales.

Treasury bill auctions during the month had an average subscription rate of 84 per cent, raising bids worth Sh80.7 billion against a target of Sh96 billion, of which the CBK accepted Sh74.7 billion.

The equities market also saw a decline in turnover, which fell to Sh10.7 billion from Sh17 billion in October.

This partly reflected the reduced activity from local investors, with most funds nearing the end of their annual cycle where they would normally cut back on trading activity.

Foreign investors also sold off a lower amount of shares during the month, with sentiment likely to turn to that of accumulation due to the fall in prices in the second half of the year.