Kenya’s Bond Market Hits KSH 1 Trillion

On August 21, 2024, the Nairobi Securities Exchange achieved a historic milestone when it surpassed the KES 1 trillion threshold for cumulative bond turnover in a single year. This is more than just a statistical feat; it demonstrates the increased depth, liquidity, and investor confidence in Kenya's bond market.

The bond market attained 67% of the overall bond turnover for 2023 by March of this year. The surge was mainly attributed to increasing liquidity in the secondary market as a result of new investors and rising interest in infrastructure bonds.

Retail investors are increasingly acquiring bond holdings in the secondary market, surpassing institutional investors. The NSE has been executing reforms in a bid to revitalize the bond and equities markets. Kenya's bond market has undergone remarkable growth since the early 1980s, when Treasury bonds were first introduced.

Initially, these bonds were short-term instruments, used mainly to meet the government's immediate financial needs. However, as the country’s economy expanded and the demand for long-term financing increased, the bond market adapted. The automation of bond trading in 2009 was a pivotal moment, introducing greater transparency, efficiency, and accessibility, which have all contributed to the market’s growth and stability.

M-Akiba, introduced in 2017, was a significant transformation in Kenya's bond market. MAkiba made it possible for ordinary Kenyans to use their phones to invest in government bonds, democratizing access to the financial markets. This program greatly increased the number of investors and improved financial inclusion by allowing even small-scale investors to engage in the bond market.

Kenya’s bond market continues to undergo transformation like with the introduction of the DhowCSD by the Central Bank of Kenya. Launched in July last year, this OTC trading platform has democratized access to government securities. Technology-driven innovations are essential to the growth of the bond market.

The DhowCSD has streamlined settlement processes allowing fast trade executions, directly through mobile phones. This has led to a significant increase in the number of trading accounts, contributing to the overall growth in bond market activity.

Earlier this year, the CMA adopted a hybrid model in the bond market that allowed bond trading to be done either directly or through intermediaries. The NSE, in collaboration with CMA, CBK, and National Treasury have also developed a real-time yield curve for bond price points which used to be provided once a week.

In contrast to other African markets, Kenya's bond trading volumes are soaring. Kenya's bond market has begun to catch up to that of South Africa, which is Africa's largest. This rise is a blatant sign of the investor confidence in Kenya's financial market and its regulatory framework.

Greater liquidity resulting from higher bond trading volumes attracts more investors to the market. This in turn contributes to funding the country’s long-term development initiatives, offering a steady stream of funding for vital industries like infrastructure, healthcare, and education.

This milestone comes hot on the heels of the NSE's recent leadership transition, with Frank Mwiti taking over as CEO. Mwiti brings to the position an abundance of experience as well as fresh ideas and viewpoints. The NSE is expected to soar higher placing itself at the forefront as a leader in Africa's financial markets. Kenya's bond market appears to have a promising future.

The market stakeholders are collaborating to improve existing and introduce new products into the market ensuring diversification. As the market evolves and adapts, the NSE is well-positioned to carve out its place as a major participant in Africa's financial scene. The future of Kenya’s bond market is bright, with the potential for continued growth and success in the years to come.