Yields on Kenya’s Eurobonds have surged to their highest level in nearly a year and a half, mirroring a broader sell-off in frontier market debt as global investor sentiment turned bearish following the announcement of new US tariffs. The Nairobi Securities Exchange (NSE) also suffered fresh losses, with Sh35.4 billion in investor wealth wiped out in a single day, deepening a market downturn that began earlier this week.
The spike in yields signals a sharp increase in perceived risk by investors, with returns on Kenya’s sovereign debt jumping between 1.5 and 2.8 percentage points over the past week. The current yields now range between 11.6% and 12.6% across various maturities levels last seen in November 2023 when investor confidence was rattled by a weakening shilling and questions over Kenya’s debt repayment capacity.
The bearish mood is not confined to Kenya alone. Other African issuers, including Zambia, Angola, and Gabon, have also seen their Eurobond yields climb into double digits as investors flee frontier markets in response to the economic uncertainties stirred by the US trade stance.
The latest catalyst came from former US President Donald Trump’s tariff announcement, which imposed levies of up to 50% on exports from select emerging economies. Although Kenya was spared the steepest hikes, it was still hit with a 10% baseline tariff enough to fuel risk aversion among investors already on edge over global recession fears.
In the secondary bond market, where debt is traded after issuance, rising yields are a direct result of falling prices. Investors, fearing further devaluation or default risks, are offloading bonds at a discount to attract buyers, driving yields higher in the process. Kenya’s seven outstanding Eurobonds, currently worth $7.52 billion, were initially issued at interest rates ranging from 6.3% to 9.75%. At today’s market rates, Kenya would have to borrow at significantly higher costs adding pressure to an already tight fiscal environment.
Meanwhile, the NSE has continued its downward spiral. The market shed Sh37.42 billion in capitalization on Monday, followed by another Sh35.4 billion yesterday. Foreign and institutional investors offloaded key blue-chip stocks such as Safaricom, Equity Group, and KCB Group. Net foreign outflows stood at Sh66.2 million on Tuesday alone, indicating a persistent flight to safety.
Analysts warn that unless global risk appetite recovers, Kenya could face a tougher road ahead in managing its debt and financing future deficits. With the shilling still vulnerable and inflationary pressures lingering, the rising cost of borrowing on international markets could force the Treasury to explore alternative and potentially more expensive domestic funding options.
As markets await clarity on global trade dynamics and the long-term impact of US tariffs, Kenyan policymakers may find themselves walking a tightrope: balancing investor confidence, debt sustainability, and domestic economic stability.
