Genghis Capital’s Caleb Mugendi on October T-bond auction, fixed-income markets

Kenya's National Treasury is set to raise KES 30 billion through the re-opening of the FXD1/2016/010 and FXD1/2022/010 fixed-income bonds in the October 2024 Primary Bond Auction. The raised funds are earmarked for budgetary support in the fiscal year 2024/25. Caleb Mugendi, Investment Manager at Genghis Capital Asset Management, provided insight into the investor appetite for these bonds amidst current market conditions and the potential impact on government borrowing costs and the overall fiscal strategy. The auction saw bids of close to KES 50 billion against the KES 30 billion on offer, indicating a high appetite from investors. However, the Central Bank of Kenya (CBK) rejected close to KES 19 billion due to the higher interest rates demanded by investors. The FXD1/2016/010 bond came in at around KES 16.99, while the FXD1/2022/010 bond slightly exceeded 17%, reflecting the market's interest in higher interest rates. This week, the central bank made headlines by reducing the central bank rate by 75 basis points to 12%, aiming to encourage economic growth and production. The equities market also experienced significant volatility driven by factors like geopolitical sentiments, the Monetary Policy Committee meeting, declining interest rates, and bond closures. The market activity saw fluctuations in turnover, prompting investors to interpret trends cautiously amidst changing market sentiments. Notably, blue-chip stocks like Safaricom saw price increases following the Central Bank's announcements, while banks faced challenges due to low private sector credit growth and rising non-performing loans. In the bond market, investors realigned their portfolios with a focus on the FXD bonds amid expectations of higher interest rates, signaling a preference for short-term securities. The Central Bank's commitment to reducing interest rates led to a rejection of high rates in recent auctions, emphasizing the downward trend in interest rates. The treasury bill auctions also reflected reduced interest rates across various tenors, pointing towards a shift in market dynamics.