“Will Eurobond 3 alter domestic debt demand?” is the title of our June 2019 fixed income report.
The report provides an investment analysis of two re-opened issues, FXD1/2012/15 (8.42 years and FXD1/2018/15 (13.94years).
The coupon of the 2012 is 11% while that of the 2018 issue is 12.65% with the latter being higher than the current traded yield on the Nairobi Securities Exchange.
The National Government has been active on the fiscal deficit funding front raising US$2.1Bn (KES.213.2Bn) from its 3rd Eurobond issue and US$1Bn (KES.101.5Bn debt from the World Bank).
This pushes commercial and international loans well above revised receipt targets and in our opinion will go a long way in bridging the gap resulting from other receipt shortfalls.
Amongst these receipt shortfalls is domestic debt. The increase in external funding will most likely reduce the pressure on the domestic debt primary market.
This will in effect result in declining yields in the short term, a scenario we observed in the previous two bond issues.
With regards to macro-economic variables and specifically inflation and the foreign exchange rate, we see some degree of decline, this behind the Monetary Policy Committee (MPC) decision to retain the policy rate.
Over the next few months we keenly await the impact of the Government’s decision to change currency notes and its impact on macro-economic stability Download Report