Retail investors increased their lending to the government by Sh130.4 billion to a new high of Sh418 billion in the first eight months of this year, chasing higher returns on offer amid a shortage of funds. returns in other asset classes in the economy.
This additional amount by retail bond buyers is equivalent to 39 percent of the Sh337 billion growth in the government’s domestic debt since January.
Read: Two-year bonds return as state faces high rates
This means that these investors are now lending to the government at a faster rate than banks, pension funds, insurance companies and parastatals – albeit on a smaller basis – and have now overtaken the latter. to become the third largest holder of state debt. .
In the public debt classification, retail lenders are classified as ‘other investors’ and include saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals.
The change in the debt holder matrix is indicative of the state of the economy and is also a result of increasing awareness of bond investments among retail investors.
The stock market has been caught in a prolonged downtrend that has seen investors’ wealth decline by Sh445.4 billion since the start of January.
Fixed bank accounts have returned between 7.4 percent and 8.1 percent this year, compared to returns of up to 18 percent available on bonds and 14 percent for Treasury bills.
“The ‘others’ could divert money from underperforming stocks. In difficult economic times, vouchers are also very attractive,” said Professor XN Iraqi, an economist at the University of Nairobi.
“Banks could diversify by investing less money in bonds, they better understand the decline in value as interest rates rise…others may not have in-depth knowledge of bonds that the banks have.”
As of September 8, the government’s domestic debt stood at Sh4.81 trillion, compared to Sh4.473 trillion at the start of the year.
Banks, which are the government’s largest domestic lenders in absolute terms, increased their debt by Sh74.7 billion between January and September to Sh2.17 trillion.
Pension funds, the state’s second largest lender, increased their bond holdings by Sh89 billion to Sh1.58 trillion.
Insurance companies and parastatals increased their public debt holdings by Sh23.4 billion and Sh18.5 billion respectively, to Sh353.1 billion and Sh289.6 billion.
During the corresponding period in 2022, pension funds were the largest new lenders to the state with Sh131.5 billion, followed by banks (Sh64.9 billion), parastatals (41 .5 billion shillings), insurers (38.6 billion shillings) while individual investors brought up the rear with 21 billion shillings.
During this period, the issuance conditions under which the government deployed long-term securities favored pension funds, but not banks, which preferred shorter-term Treasury bills and bonds.
Read: Treasury taps four short-term bonds to raise Sh222 billion
Paper losses on mark-to-market bonds are also a factor for banks and insurance funds in their financial reporting, although they do not translate into actual losses unless the papers are liquidated. .
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