Fixed Income Hits New High on NSE



The shift to fixed income investments during the Covid-19 pandemic took bond trading on the Nairobi Stock Exchange to a record $ 8.37 billion last year, nearly seven times the value of shares traded on the stock exchange.

Retail and institutional investors are looking for the higher guaranteed returns available for government securities, as earnings from other asset classes such as stocks and cash deposits remain low.

The government’s great appetite for debt has also fueled additional trading activity on bonds with the high number of issues entering the market, raising concerns that the private sector will be deprived of credit.

Over the past year, the Treasury sold a net $ 6.76 billion in new bonds which were then actively traded on the exchange.

“The bond market exceeded the 2020 figures by 38.44% to 8.37 billion dollars against 6.05 billion dollars recorded in 2020; this is a record of commercial activity recorded. Stock turnover fell 7.58% to $ 1.2 billion from $ 1.29 billion the year before, ”the NSE said.

The increased bond turnover has generated more commissions for the trader and brokers who handle debt securities transactions. The bond market was also seen as a haven for investor liquidity after the pandemic hit the country and contracted the economy by 0.3% in 2020.


Increase in assets

Retail government bond traders – including Saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals – increased their holdings of securities by $ 867.7 million. dollars to $ 2.17 billion during the year.

However, stocks have become riskier and less attractive to investors as listed companies recorded declining profits and cut dividend payouts in order to preserve their liquidity in a difficult operating environment.

The equity market has struggled to break free from the downward race that has kept prices relatively low since early 2015.

While the bond market has set new records for annual volume traded in each of the past four years, the record annual turnover for stocks remains the $ 1.88 billion traded in 2014.

At the same time, money market funds continued to outperform all other asset classes in 2021, for the second year in a row, due to their higher returns.

During the period under review, the Cytonn Money Market Fund recorded the highest effective annual return of 10.5%, compared to an industry average of 8.8%.

Notably, the other asset classes recorded improvements compared to 2020, with the NASI being the biggest winner having increased by 14.1 percentage points for a return of 5.5% after falling 8.6% in 2020, with investors looking to take advantage of the rally in stock prices from last year. low. In addition, the gradual economic recovery after the reopening of the economy has contributed to the improvement.

In 2021, demand for treasury bill auctions was relatively low, with the average subscription rate standing at 94.1%, down from the 130.9% subscription rate recorded in 2020.

This is because investors have turned to the bond market in search of higher yields. On the other hand, the primary auctions of Treasury bonds in 2021 were in great demand, with an average subscription rate of 147.6%, higher than the average subscription rate of 130.6% recorded in 2020, partly due to because of the ample liquidity of the money market. .

The market preferred medium-term bonds, with the aim of hedging against duration risk.

“We expect the economic recovery seen in 2021 to continue into 2022. In addition, we expect the interest rate environment to remain stable as the government continues to reject expensive bids in the auction market in an attempt to keep rates low. ” said Stellah Swakei, research and investment assistant at Cytonn Investments.

In 2021, the Kenyan stock market advanced with the NASI, NSE 25 and NSE 20 increasing by 9.5%, 9.8% and 1.6% respectively.

The performance of the equity market over the year was shaped by gains from stocks such as Equity Group, ABSA Bank Kenya, British American Tobacco Kenya (BAT), Kenya Commercial Bank (KCB) and Safaricom Plc. Gains were, however, weighed down by losses at bank stocks such as Diamond Trust Bank Kenya (DTB-K), Standard Chartered Bank (SCBK) and NCBA Bank.

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