Automated bond trading boosts liquidity on Nairobi Stock Exchange

Liquidity is up, while the number of days for settlement and cases of fraud are down in bond trading as fixed-income traders and investors flock to the Automated Trading System (ATS) of the Nairobi Stock Exchange (NSE – www.nse.co.ke).
According to report in Kenya’s Business Daily (www.businessdailyafrica.com), citing data provided by NSE, the value of bonds traded by the end of May was KSh 177.5 billion ($2.2 billion), up 60% on the KSh 110.6 billion traded in the same period in 2009.
The report says that 90% of bonds traded are transacted by banks and institutions, such as fund managers. High-net-worth individuals are also active.
James Mutuku, Head of Asset Liability Management at Standard Chartered Bank, reportedly attributes the increased liquidity to the ATS – “At the moment the system is working very well” – and because banks are establishing dedicated bond trading desks. Reportedly some trades settle the day after the trade, because of the ATS efficiency, compared to a week previously.
Ronald Olembo, a fixed income analyst at CFC Stanbic Bank, is quoted saying that there is a better match between inflation and bond yields. According to the Central Bank of Kenya (www.centralbank.go.ke), annual inflation was 3.9% in May, compared to 26.6% in 2008 and 12.4% per cent in 2009. Last October the Kenya National Bureau of Statistics started using the geometric mean method to calculate inflation, which gives lower figures than the arithmetic mean method used previously. In April KNBS adjusted the basket of goods and services used to calculate the consumer price index. The central bank says it reflects changed consumer tastes and makes the inflation rate comparable with that in other countries.
Olembo reportedly compared present and past said that before.. “..We had 20-year bonds yielding approximately 12%, yet inflation was 26%. Investors are now seeing a positive real return on their investments.”
Cases of fraud have also reduced, increasing investor confidence.

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