Bonds Fever: The Movement of Funds From Equities to Bonds

by Tahnia Oginga

In a financial twist that has the Kenyan markets, a capital shift from equities to bonds took center
stage. Over the past week, the equities market witnessed a significant net foreign outflow totaling KES 281.43Mn down from net inflows of KES 11.13Mn the previous week, as investors flocked towards the allure of bonds.

The catalyst for this movement can be partly attributed to the bond repurchase initiative in the
international capital markets that sparked a frenzy among investors. This repurchase, with an enticing interest rate of 9.75% and a mouthwatering yield of 10.375%, proved irresistible to both domestic and foreign investors alike. The repurchase saw an oversubscription, attracting a total investment of $1.5 billion.

What does this mean for the financial landscape? It’s a clear indication of a shifting tide. Investors,
seeking stability and guaranteed returns in uncertain times, abandon the volatility of equities in favor of the security and predictability offered by bonds. The net foreign outflows from equities underscore the nature of this trend, as investors pivot towards safer assets. It’s a move that speaks volumes about investor sentiment and the risk appetite in today’s markets.

But amidst the fervor for bonds, a glimmer of anticipation emerges on the horizon. We anticipate net foreign inflows in the coming week to ebb towards the equities segment as macroeconomic indicators show signs of improvement. As consumer demand begins to strengthen and growth within the country gains momentum, investors may find renewed confidence in the prospects of equities.