Bonds turnover down as investors go for safe assets

Nairobi Securities Exchange. FILE PHOTO | NMG 

By CHARLES MWANIKI
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Summary

• Bonds turnover at the Nairobi Securities Exchange (NSE) fell by 21.8 percent in the first half of 2020 compared to a similar period last year as investors held on to the low risk government securities as a buffer against low returns elsewhere in a Covid-19 affected economy.
• NSE data shows that the secondary market turnover for bonds declined to Sh283.8 billion in the six month period from Sh363.1 billion last year.
• Given that other asset classes such as equities have been hit by the Covid-19 effects, investors viewed bonds as a safe bet to protect their returns and were therefore less inclined to sell on these assets at the exchange.

Bonds turnover at the Nairobi Securities Exchange (NSE) fell by 21.8 percent in the first half of 2020 compared to a similar period last year as investors held on to the low risk government securities as a buffer against low returns elsewhere in a Covid-19 affected economy.

NSE data shows that the secondary market turnover for bonds declined to Sh283.8 billion in the six month period from Sh363.1 billion last year.

Given that other asset classes such as equities have been hit by the Covid-19 effects, investors viewed bonds as a safe bet to protect their returns and were therefore less inclined to sell on these assets at the exchange.

INVESTOR TASTE

“The decline in secondary bond turnover can be attributed to investors’ preference to hold safe assets at the moment due to the uncertainty in the market affecting the performance of riskier asset classes,” said analysts at Cytonn Investments in a review of the markets for the first half of the year.

SHORTEST TENOR

The bonds yield curve rates range from 6.2 percent for the shortest tenor securities (91-day Treasury bill) to 13.1 percent for bonds of over 20-year tenors.

This contrasts with the equities market, which in the first half of the year recorded a decline of 17 percent or Sh436 billion in market capitalisation to end June at Sh2.1 trillion.

OVERSUBSCRIPTION

The benchmark NSE 20 share index was down 27 percent in the six months to end June at 1,942 points, while the all-inclusive NSE All Share Index fell 17 percent to end the half-year at 137.7 points.

There was also ample demand for new securities floated in the first half of the year, with both Treasury bills and bonds recording oversubscriptions during auctions done by the Central Bank of Kenya.

Investors bid a total of Sh917 billion for Treasury bills in the six months, which represented an oversubscription rate of 153 percent, with the CBK taking up Sh551 billion.