A Nairobi Securities Exchange staff on the trading floor. PHOTO | SALATON NJAU | NMG
Summary
- The Nairobi Securities Exchange (NSE) traded the largest-ever turnover of bonds last year, thanks to significant liquidity and a weak equities market in the first half of the year.
- NSE data shows that the secondary market bond turnover —both government and corporate — stood at Sh651 billion, 15.84 per cent higher compared the previous year’s transactions.
- Most of the fixed-income instruments continued to be bought and held by commercial banks — especially the top-tier institutions — which had an accumulation of liquidity at a time of restricted movements in lending rates.
The Nairobi Securities Exchange (NSE) traded the largest-ever
turnover of bonds last year, thanks to significant liquidity and a weak
equities market in the first half of the year.
NSE data
shows that the secondary market bond turnover —both government and
corporate — stood at Sh651 billion, 15.84 per cent higher compared the
previous year’s transactions.
“The bonds market
outpaced 2018 numbers in activity by 15.84 per cent to Sh651 billion
from Sh562 billion traded in the year 2018,” said the NSE in its
end-of-year report.
Most of the fixed-income
instruments continued to be bought and held by commercial banks —
especially the top-tier institutions — which had an accumulation of
liquidity at a time of restricted movements in lending rates.
The
trading for the year was at its peak in July when more than Sh80
billion was transacted but this changed later in the year as liquidity
tightened and the rate cap was removed. The equities market also began
to recover.
“High liquidity levels in July saw Sh84.70 billion traded with
tight liquidity and change in tactics towards the end of the year saw a
low of Sh16.48 billion traded in December,” said Kingdom Securities in
its update to clients.
The year 2018 also happened to
have a high turnover of bonds — the second-highest historically — as a
result of similar factors, having only been surpassed by the turnover in
2012, which stood at Sh565 billion. This was Sh3 billion higher than in
2018.
Commercial banks held 54.23 per cent of the
bonds, insurers held 6.51 per cent, parastatals had 6.67 per cent while
pension funds had 28.24 per cent. Other investors held 4.35 per cent.
As
of December 20, the bonds constituted 66.73 per cent of the government
debt with most of the other debt in the form of shorter-dated
instruments, mostly Treasury bills.
The bonds market
benefited from the reduced attraction of the equities market where the
NSE 20 Share Index fell by 6.33 per cent and the turnover fell by 12.4
per cent during the year even as the other indices (NSE 25 and NSE
All-Share) recorded improved performance.
The equities
market only recovered after the interest rate cap was removed and
commercial banks’ share prices shot up, boosting the entire market.
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