Business Daily (Nairobi)
Goeffrey Irungu
19 March 2008
The bond market has been on a steady recovery path over the last six weeks as investors shift from the equities market that has been hit by falling prices.
On a week-by-week basis, the bond market turnover has risen since February 7, and reached a high of Sh7.5 billion at the end of last week.
On the week ending February 7, only Sh61 million in bonds were traded. The highest volume traded on the week ending March 14 coincided with the announcement of the Safaricom IPO start date being confirmed as March 28.
"We have seen institutional investors come into the bond market in a big way and this has increased turnover," said Kabaki Wamwea, executive director and specialist in fixed-income securities at Dyer & Blair.
Retails investors are keen to put their money in the upcoming IPO, a development that has precipitated massive sale of shares thereby forcing prices downwards from last week.
Mr Wamwea said that fund managers are unlikely to have a sizeable allocation in their application for the Safaricom shares and intend to put their funds into bonds and other money market instruments.
"They are highly unlikely to offload bonds for the sake of putting a bigger allocation in the IPO or in equities," said Mr Wamwea. The concentration of bond holdings in financial institutions also cushions it from volatility at the NSE.
Bonds do not often compete with equities but with lending such that the allocations for the bonds will go up if demand is constrained on the lending side.
After the low market activity experienced in January, there have been moves in both the equities and money markets towards realignment in portfolios as investors seek higher returns, said Job Kihumba, the executive director at Standard Investment Bank.
Indeed, in the week ending March 13, the bonds traded stood at Sh7.17 billion up from Sh2.76 billion in the previous week but the opposite effect was observed in the equities market. For shares, the turnover was at Sh1.8 billion in the same week as compared to Sh3.6 billion in the previous week.
"We are seeing the cycles that you see in the market whenever there is concentration of funds in one part of the market and interest rates are changing," said Mr Kihumba.
The question, however, remains as to how long the current interest in the bond market will last given that interest rates on the benchmark 91-day treasury bill has been going down lately.
The rate now stands at 6.87 per cent compared to 7.29 per cent in mid February, a difference of 0.5 per centage points.
In the developed world, a change of the bench market rate by 50 percentage points by the central monetary authority within just a month is considered an aggressive move.
In Kenya, it has been difficult to predict the direction of interest rates as they often seem to be dictated by the governent's demand for funds.
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