T-Bill prices shrink after cap repeal
President Uhuru Kenyatta last week signed into law the Finance Bill 2019
By John Otini
Investors seeking to off-load their bonds will be forced to hold them to maturity as rising yields on government paper takes lustre away from secondary bonds, analysts say.
This is because the market is repricing the cost of credit to government upwards to reflect the repeal of interest rates making them more attractive to lenders.
President Uhuru Kenyatta last week signed into law the Finance Bill 2019 which among other provisions, repealed section 33B of the Banking Act that provides for the capping of interest rates.
Secondary market
“We see the secondary bond market running into headwinds as yields in the primary market are repriced upwards,” said Martin Kirimi, head of fixed income at Standard Investment Bank.
The yields in the secondary market will be pushed down and those holding bonds may be able to sell just a stake but most of them will have to hold them to maturity due to prevailing market conditions, said Churchill Ogutu, a fixed income dealer at Genghis Capital.
A bond is a loan to a company or government that pays investors a fixed rate of return over a specific term.
Dealers are already saying that holders of securities in the secondary market are not willing to sell at the moment due to the not so attractive conditions.
“The government is selling a Sh50 billion bond as we speak and I do not expect it to trade at the same price of 11 per cent as the previous 10 year bond,” Churchill said adding that the bond may attract 12 per cent interest.
Treasury is faced with an acute shortage of cash which has seen it raise taxes across board and simultaneously push for the lifting of Kenya’s debt ceiling, a reflection of the seriousness of the situation.
A combination of heavy borrowing and poor management of funds coupled with corruption, wreaked havoc on government finances.
