Finance Bill 2024: How Protests Affect Kenya Shilling Value as Kenya's Eurobond Yields Hit Highest Since February

• Anti-government protests against the Finance Bill 2024 have significantly affected Kenya's financial markets, causing a steep rise in yields on Kenya's sovereign dollar bonds
• The yields on Kenya's newest Eurobond rose above 10% since it was listed in February 2024, reflecting heightened security risks
• Economist Daniel Kathali told TUKO.co.ke that the protests have damaged investor confidence, increasing the cost of raising capital through sovereign bonds

Elijah Ntongai, a journalist at TUKO.co.ke, has more than three years of financial, business, and technology research expertise, providing insights into Kenyan and global trends.

The Finance Bill 2024 protests have sent jitters across the globe, as reflected in the soaring yields on Kenyan sovereign dollar bonds.

Kenyan currency and Eurobond yield among assets affected by the Finance Bill 2024 protests that rocked the country. Photo: Getty Images. Source: UGC

Market reports indicate that the prices of Kenya’s sovereign dollar bonds have been sinking due to the anti-government protests against the Finance Bill 2024.

Bloomberg reported that Kenya's 2031 debt security fell on Wednesday to its lowest price since being issued in February.

This pushed Kenya's bonds to one of the worst performances among emerging and frontier markets since June 18, when demonstrations began.

The yields on the newest Eurobnd rose above 10% since it was listed in February 2024.

A graph showing yields on Kenya's newest Eurobond since it was listed in February. Source: Bloomberg. Source: UGC

How Kenya will be affected by falling bonds prices

Speaking to TUKO.co.ke, Daniel Kathali, an economist, explained that dollar bonds are necessary to raise capital access funding and national forex reserves.

Kathali explained that issuing bonds is like a country taking a loan but from many people and noted that any country is always looking to sell bonds at the lowest interest rates.

He explained that the rise in yields for the sovereign dollar bonds is bad for Kenya because,

"When there are deadly protests such as the ones witnessed in Kenya, investors lose some confidence, and the market reads this as increased risk investing in that country's bonds, so those investing in your bonds need a promise of a higher return or yield."

The economist further noted that the Finance Bill protests may have severe effects on the Kenya shilling and other government fundraising efforts.

"The problem has been how to raise money to finance the 2024 to 2025 budget. Therefore, the protests have not only affected the government's plans to raise about KSh 346 billion through the Finance Bill 2024 but have also had a spiralling effect on other plans. It is common knowledge that investors run away at first sight of trouble.

The deadly protests have reduced market confidence, especially among the international communities. The prices of dollar bonds have risen significantly, and this will take time to come down, which means that Kenya will pay these bonds at higher interest as yields go down," Kathali told TUKO.co.ke.

Will Finance Bill 2024 protests affect value of Kenya shilling?

On Wednesday, June 26, a day after the deadly protests in Nairobi and across other major towns in the country, CBK placed the value of the shilling at KSh 128.7633 per US dollar, which indicated that the shilling was holding steady.

Kathali opined that although the shilling has remained strong, prolonged instability could cut off foreign exchange inflows into the country, creating an imbalance in the supply and demand of the Kenya shilling and US dollars.

He also noted that CBK partly maintains its US dollar reserves used to cover imports through sovereign bonds, and if the markets lose confidence in Kenyan bonds, national reserves may suffer, consequently affecting the shilling.

"The bonds also generate foreign exchange for Kenya, and this is going to be affected as people wait to see what happens... A drop in the flow of US dollars in the country through bonds or foreign direct investments may create a supply deficit that may raise the value of US dollar currencies and reduce the value of the Kenya shilling. The soonest these protests are resolved the better we will all be" Kathali noted.

Kenya's forex reserves surpass KSh 1t mark

Earlier, TUKO.co.ke reported that CBK increased its foreign exchange reserves to USD 8,321 (about KSh 1.08t) million, providing 4.3 months of import cover.

For the first time in 12 months, Kenya's US dollar reserves surpassed KSh 1 trillion, reflecting a significant milestone in the country's foreign exchange management.