Kenya debt yields seen rising

NAIROBI: Investors are expecting Kenyan Treasury bill yields to rise further in the first quarter, buoyed by a spike in inflation to 8 per cent and by demand for higher returns on debt rolled over from late 2015 when rates peaked above 22 per cent.

But yields are not seen climbing to last year’s highs, partly because foreign demand for Kenyan debt is still solid in the face of other, less appetising options for dedicated Africa investors. So far this year, yields on the 91-day bill have edged higher to above 11 per cent, 182-day yields are more than 13 per cent and 364-day bill offer above 14 per cent. All are below the 2015 peak.

“If you invested at 20 per cent, are you likely to come in and invest at 11 per cent? No, you will think twice,” said one fixed income trader at a Nairobi-based commercial bank. Fixed income traders said some Sh212 billion worth of bills and bonds were maturing from January to March, including short-term debt with yields around 20 per cent.

Adding to pressure, inflation rose to 8.01 per cent in the year to December, up from 7.32 per cent a month before and above the government’s preferred 2.5 per cent to 7.5 per cent band.

“The recent hike in headline inflation in December was quite aggressive and is expected to continue in January due to one-off increases in education and household rent,” said Alexander Muiruri, fixed income analyst at Kestrel Capital.

“These factors coupled with only a marginal decline in oil pump prices will force investors to add a higher premium to Treasury bill rates,” he said. But investors say the rise may only be a few per centage points and well short of the 20 per cent mark this time.