In the first two months of 2019, investors have shown great demand for short term and medium term bonds. January registered the highest rate of oversubscription for the 2-year and 10-year bonds in more than three years.
A report by Sterling Capital attributes the high appetite for short term government debt to increased liquidity in the market.
High demand for short-term debt has led to a decline in their yield. In contrast, long term bonds have recorded a slight increase in yields.
Kenya’s treasury has benefitted from the high demand for bonds as it has been able to raise low-cost funds to bridge the budget deficit gap. Analysts at Sterling Capital predict that the government will issue bonds aggressively in the second half of the fiscal year 2018/19 to make up for the lower than expected revenue received in the period up to December 2018.
Since the year began, the Kenyan shilling has remained stable against the US dollar mainly supported by cash inflows from diaspora, improved agricultural yields, and income from tourism. Inflation dropped to 4.7 per cent in January from 5.7 per cent recorded in December.
Sterling capital analysts expect February inflation to be between 4.5 per cent and 4.9 per cent supported by low oil prices and stable cost of food. They also predict that the Central Bank Rate will be maintained at its current level of 9 per cent during the next Monetary Policy Committee meeting in March.