Bloomberg News

Kenya Bonds Fall 3rd Day, Shilling Has Worst Quarter in 3 Years

September 30, 2011

Sept. 30 (Bloomberg) -- Kenyan bonds fell for a third day, raising yields on the 2016 notes to the highest in at least four months as inflation quickened for the 11th month and the economy contracted for the first time in six quarters.

Yields on the 7.636 percent debt increased three basis points, or 0.03 percentage point, to 13.83 percent by 2:26 p.m. in Nairobi, the highest since May 24, when Bloomberg started compiling the data. The shilling erased an earlier drop, adding 0.2 percent to 99.55 per dollar, taking its decline this quarter to 10.3 percent, the worst since the three months through September 2008, when it weakened 10.8 percent.

Kenya’s inflation rate rose to 17.3 percent this month as the cost of food and oil surged, the statistics agency said yesterday. The economy contracted a seasonally adjusted 4.6 percent in the second-quarter, as poor rainfall hurt farm output, it said.

“With inflation going up, for investors to get a rate of return on bonds it makes sense the yield has to go up,” Benson Kinuthia, a fixed-income dealer at Genghis Capital Ltd., said by phone.

The shilling has lost 19 percent this year against the dollar, making it the worst-performing currency worldwide, according to data compiled by Bloomberg. Price growth has exceeded the government’s 5 percent target all year, as Kenya feels the effects of the worst regional drought in 60 years, which has cut agricultural production and forced the country to boost food imports, including sugar, whose retail price has more than doubled this year.

Rate Meeting

Kenya’s monetary policy committee will next meet on Oct. 5, three weeks after it raised the key lending rate by three- quarters of a percentage point to 7 percent, its steepest rise since the rate was introduced in June 2006 to combat inflation.

Prime Minister Raila Odinga has formed a team of government officials and industry leaders to examine ways to stabilize the shilling that will report its recommendations next week.

--Editors: Ana Monteiro, Linda Shen

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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