Kenyan Eurobonds have taken a hit from asset managers’ exit from emerging and frontier markets in recent months, making it potentially expensive for the country to acquire any new commercial debt.
The yields on the bonds have risen sharply in the past three months compared to the beginning of the year. The recent months have seen the US raise interest rates and cloud hanging over the Turkish lira — which has recently lost 40 per cent of its value — has provided another reason for the exits.
“Asset managers are exiting frontier and emerging markets after the problems facing Turkey’s currency. In Kenya, they know that the Treasury is between a rock and a hard place in implementing the requirements of the International Monetary Fund (IMF). The IMF requirements are painful but the Treasury doesn’t know whether to play populist,” said Raymond Kipchumba, research analyst at Nairobi-based ABC Capital.
The five-year bond due for redemption mid next year is up 1.7 percentage points to 5.338 per cent, according to the latest data from the Central Bank of Kenya. The Eurobond began the year at 3.59 per cent.
The 10-year Eurobond due in 2028 was up 1.7 percentage points to stand at 8.252 per cent as at the end of last week compared to the beginning of the year.
The 30-year bond, which is due in 2048, was up 1.14 points compared to the date of issue which was in February this year.
Mr Kipchumba said foreign investors are keen on the exchange rate, which might experience pressure without the IMF cushion especially at a time when the international financial markets are also grappling with the jitters expected to follow imposition of US sanctions on Iran later in the year.
“Investors might not see the need to hold frontier or emerging market debt with the US sanctions on Iran looming. For Kenya, the IMF issue remains a big one,” said Mr Kipchumba.