Top performer Kenya's bond market suffers worst day since November

One of the year’s best performing bond markets, Kenya, suffered its worst day since November on Friday, as a multi-million dollar scandal building around its finance minister was compounded by a bad day for riskier assets globally.

A broad-based fall left the country’s longer-dated dollar-bonds that are usually favoured by international investors down almost 2 cents and more than any other African countries’ bonds though many had also seen sizable falls.

Earlier this week, Kenyan police summoned Finance Minister Henry Rotich for questioning for a second time over a scandal involving advance payments for two dam projects in the country’s Rift Valley.

The chief prosecutor’s office said on Friday that it was looking into contracts worth Sh65 billion around Sh21 billion which had allegedly been paid in advance.

They are seeking assistance from counterparts abroad to trace the movement of those funds, it added.

Rotich has said all payments relating to the dam projects had been made in strict adherence to the law and in accordance with commercial and financing agreements.

Kenya’s improving economy and relative stability have made its bonds a favourite pick for investors this year who have been piling back into Africa’s high-yielding ‘frontier’ markets.

Despite a run of falls this week as the concerns around the dam scandal have mounted, they remain some of the best performing bonds in the world.

They have returned 12.2 per cent year-to-date according the main emerging market debt index, the JP Morgan EMBI Global Diversified.

That compares to 7.4 per cent year-to-date for the frontier market subset of the JP Morgan index and 5 per cent for the broader emerging market swathe.

Koon Chow, an emerging market strategist at fund manager UBP, said the concerns around Rotich were probably part of pressure in recent days although there it was clearly also down to investors cashing in on some of the year’s gains.

“Kenya was one of the biggest overweights (for investors this year) so as risk has been taken off the table, it has been beaten up.”