The Kenyan shilling hit a two-week low against the dollar last week following a terrorist attack in the coastal town of Mpeketoni in Lamu County, despite news that the country’s debut Eurobond was oversubscribed.

The Kenyan shilling was trading at 87.7 against the dollar last week, from 87.4 two weeks ago, even as the country’s bond arrangers revealed that the $2 billion bond had attracted bids worth $8 billion — four times the targeted amount.

Analysts said the Mpeketoni attack, in which 60 people were confirmed dead, overtook the news that the country had achieved full subscription at rates that were substantially lower than the government target.

Treasury and analysts expected yields on the Ireland-listed bond to average about 7.5 to 8 per cent, but the bond, which came in two tranches of a five-year $500 million bond and a 10-year $1.5billion bond, attracted yields of 5.875 and 6.875 per cent respectively.

Though Kenya scored better than expected, analysts say the country’s risk premium could be weakened in coming months by growing insecurity and worsening macroeconomic indicators.

READ: Kenya credit rating seen as favourable ahead of Eurobond

“We believe the country’s risk outlook will be dampened in the short-term based on the spate of terror attacks. Travel advisory statements issued by the UK, the US and Australia are an indication that Kenya could get the cold shoulder from international investors in the short term,” said an analyst at research firm Stralink International.

Research firms said investors are taking a more forward-looking approach to the economy, discounting the current challenges.

“Investors continue to look for yield, but are also able to look through the headlines to focus on the positive underlying credit stories of potential African issuers,” John Wright, an emerging-markets banker at Barclays, told the Wall Street Journal last week.

Reuters added its voice, saying, “Fund managers say Kenya has a positive growth and monetary policy outlook, making it an attractive investment proposition, despite the attacks that are hitting tourism.”

There is optimism that the country’s wide choice of travel destinations, away from the Coast, could offer reprieve to the tourism industry.

“This positive outlook reflects a more diversified Kenyan tourism industry, in which safari-oriented tour companies, like Safari Consultants, remain largely unaffected by the terror campaign,” said  Patrick Malone, an analyst at Damina Advisors.

The insecurity is expected to put more pressure on the country’s projected growth level; consulting firm Deloitte warned that a drop in tourism spending coupled with the unstable prices of tea, the country’s second largest earner, whose prices are hovering at seven-year lows, could put pressure on growth.

“Two key $1 billion pillars of the economy, tourism and tea, are adding significant downside risks to the economy in 2014. The new post-Westgate security normal is an elevated one and further crimping GDP,” said Deloitte in their latest update on the Kenyan economy.

Tea export earnings fell to Ksh94.6 billion ($1.1 billion) last year, from Ksh112 billion ($1.3 billion) and Ksh109.4 billion ($1.27 billion) in 2012 and 2011 respectively.

The bond could also prove important in stimulating economic growth. The government will spend at least $1.5 billion of the monies to fund infrastructure projects (the rest will go towards retiring a $600 million commercial loan) in the road and energy sector, with this expenditure expected to raise demand for goods and services.

Inadequate infrastructure is one of the challenges facing Kenya; it has denied the country maximum value from its primary products such as tea, coffee and horticulture as farmers cannot access markets due to bad roads and manufacturers cannot compete against imports due to expensive inputs such as power.

“The presence of large productivity gaps between the manufacturing and service sectors on the one hand and the agricultural sector on the other indicates that there is significant potential for growth.

“However, fulfilling this potential requires increased diversification and a move from the production of primary products to value added products as outlined in the budget,” said consulting firm PwC.

Most importantly, the Eurobond is expected to lower government borrowing in the local debt market.