Yields on Kenya’s Eurobonds jumped to their highest level in 17 months as jittery investors sold frontier market bonds after the announcement of US tariffs, with the NSE also continuing its slide with a further Sh35.4 billion drop in investor wealth.
The bearish sentiments on Kenya’s offshore debt mirrored other African issuers such as Zambia, Angola and Gabon, which saw their yields rise into double digits.
Yields on Kenya’s issuances rose by between 1.5 percent and 2.8 percent compared to their levels a week earlier, settling at between 11.6 and 12.6 percent across the different tenors.
This is the highest the yields have climbed since November 2023, when investors were worried about Kenya’s ability to repay its external debt amid a sharp depreciation of the shilling.
These yields are a key indicator of the risk perception placed by investors on Kenya’s sovereign debt and show the rates at which investors would be willing to lend to the government at a particular point in time.
Kenya’s seven outstanding Eurobonds worth $7.52 billion were issued at rates of between 6.3 percent for a 13-year, 2021 bond and 9.75 percent on a seven-year paper issued in February 2024.
This means that if the country were to go back to the market at today’s indicative yields, it would be paying a sizeable interest rate premium compared to the bonds already in the market.
In the secondary market, bonds are sold for a premium or discount of their face value — the actual value or cost of the bond at its first issue— with a corresponding yield, which goes up when the price falls and vice versa.
The bond yields in the secondary market therefore rise when risk sentiment goes up, as prices come down because investors are willing to offer their bonds at a discount to secure buyers.
When risk perception falls, yields go down as prices go up, showing that investors are demanding a premium to let go of their bonds in the expectation that new issuances of similar tenor would pay less in interest.
Investors also typically demand higher returns lending to emerging and frontier countries such as Kenya, which are seen as relatively high-risk compared to obligations of the US and European governments.
The risk perception on these frontier bonds rose from Monday due to the tariffs announced by Mr Trump, in which some smaller economies such as Lesotho, Sri Lanka and Vietnam were the worst hit with levies of up to 50 percent. Kenya was hit with the baseline 10 percent tariff.
Global markets reacted to the tariffs with sharp losses from Friday, feeding off fears of a global trade war and recession among the world’s big economies.
The NSE was not spared the losses, shedding Sh37.42 billion in investor wealth on Monday, and a further Sh35.4 billion yesterday as institutional and foreign investors turned bullish on key blue chip stocks such as Safaricom, Equity Group and KCB Group.
Foreign investors sold a net of Sh66.2 million worth of shares yesterday, pointing to continued flight to safety from the equities market.
Safaricom shed Sh20 billion in valuation following a Sh0.50 drop in share price to Sh17.60, while Equity Group’s Sh0.95 drop in share price saw its market valuation fall by Sh3.6 billion.
As a result, the NSE’s market capitalisation—the measure of investor wealth—fell below the Sh2 trillion mark for the first time since the end of January, settling at Sh1.994 trillion at the close of trading yesterday.
In times of economic uncertainty, investors normally seek out safe-haven assets such as government bonds to protect themselves from volatility in higher-risk investments such as equities.
