21 January 2019

Kenya: Eurobond Yields Defy Nairobi Terror Attack

Yields on Kenya's Eurobonds fell last week as the Nairobi terror attack failed to cow international investors who have cut their risk rating on the country's debt this year.

In trading at the Irish Stock Exchange, the $1.5 billion 10-year tranche issued in 2014 saw yield fall to 7.4 percent Friday from 7.52 percent a week earlier. The yield on the $1 billion 10-year bond issued in February last year fell from 8.26 percent to 8.18 percent. The long-term 30-year $1 billion paper issued last year has also seen its yield ease from 9.17 percent to 9.09 percent during the week.

These yields have come down significantly since the beginning of the year, having stood at 8.35, 8.99 and 9.75 percent for the 10-year 2014, 10-year 2018 and 30-year 2018 papers respectively. "In the international markets, yields on Kenya's 10-year (2024), 10- year (2028) and 30-year Eurobonds declined. However, the yield for the five-year rose marginally," said CBK in its weekly bulletin.

Higher yields in the secondary market are usually an indicator of the risk apportioned to a debt by investors, with higher risk pushing them upwards and vice versa.

Prices move in the opposite direction, down, as investors demand a high premium to take on risky debt and sellers a discount to let go of less risky paper.

The movement of the Eurobond yields thus indicates investors were not spoked by the terror attack in Nairobi on Tuesday, mirroring the reaction in the local market where the shilling remained steady against the dollar and the NSE closed the week 2.1 percent higher.

These yields, however, do not affect the interest that Kenya is paying on the existing Eurobonds, given that they came with a fixed coupon. They, however, guide the price the country will be expected to pay if it hits the market for a new issue.

The government is expected to hit the international debt market before the end of the fiscal year in June for new debt and for funds to roll over the maturing $750 million five-year Eurobond tranche and a $250 million syndicated loan.


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