Weekly Fixed Income & Money Market – Week 43

Weekly Wrap:
Secondary market turnover surged 175.49% w/w to close at KES 16.68Bn with the top five traded papers accounting for 50.87% of total trades. The week’s activity was buoyed by demand in the short-to-medium term tenors coupled with infrastructure bond papers. We attribute the rejection of close to KES 20Bn at the primary bond auction as the primary driver of the week’s activity. However, the Central Bank of Kenya re-opened the FXD2/2018/15Yr seeking to raise KES 32Bn; the first time it has opted for a bond re-opening over a TAP Sale in the month a primary bond auction has been held.
The local currency faced pressure in the week to close at 101.34 against the US dollar which was attributed to end month greenback demand from the corporate sector. Central Bank report indicates that diaspora remittance flow grew 41.90% y/y to USD 2.55Bn in the first eight months of the year. Usable foreign exchange reserves held at the central bank declined by USD 101Mn to USD 8.31Bn; equivalent to 5.50 months of import cover.
Money Market:
The average interbank rate declined 16bps to 3.57% in the week. This was attributed to improved liquidity in the market with the average dropping to 3.05% in Friday’s session. The regulator intervened on both sides of the transactions in the course of the week. The weekly volumes traded in the interbank market edged up by KES 28.32Bn to KES 105.40Bn.

This Week’s Outlook:
We expect demand to remain elevated in the short and intermediate tenors in the course of the week. We do not foresee appetite on the re-opened FXD2/2018/15Yr paper. The inflation print for the month of October will indicate the build-up in inflationary pressure which is due to a flare-up in fuel inflation.

Up-coming Auctions: 
31st  October – KES 32.0Bn FXD2/2018/15 (Re-opening).
1st  November –KES 4.0Bn 91-day, KES 10.0Bn 182-day & KES 10.0Bn 364-day.

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by Gerald Muriuki