Kenya’s fixed income market remained well supported during the week ending 13th March 2026, with continued investor demand for government securities, stable liquidity conditions, and evolving fiscal dynamics shaping market direction. While Treasury bill demand moderated from the previous week’s peak levels, investor participation remained strong overall, reflecting sustained confidence in the domestic fixed income market.

At the same time, developments in public finances, external markets, and energy pricing provided additional context for assessing the macroeconomic environment.

Treasury Bills Market

Treasury bills were oversubscribed for the seventh consecutive week, with the overall subscription rate coming in at 182.3%, down from the elevated 418.4% recorded the previous week. While the decline reflects normalization after an exceptionally strong auction, demand remains robust by historical standards.

Investor preference shifted back toward shorter tenors during the week. The 91-day paper recorded a subscription rate of 124.5%, a sharp recovery from 48.7% the previous week, indicating renewed demand for short-term liquidity instruments.

In contrast, demand for longer tenors softened. The 182-day paper recorded a subscription rate of 78.9%, while the 364-day paper declined to 308.7%, down significantly from the previous week’s elevated levels. The moderation suggests a degree of portfolio rebalancing following aggressive positioning in longer maturities in prior weeks.

The government accepted Kshs 32.3 bn out of Kshs 43.7 bn in bids, translating to an acceptance rate of 73.8%, higher than the previous week. This indicates a more accommodative stance in absorbing market liquidity.

Yields recorded a mixed performance. The 364-day yield declined further to 8.5% from 8.6%, reflecting continued demand for longer tenors despite reduced subscription levels. The 91-day yield eased slightly to 7.6%, while the 182-day yield remained broadly stable at 7.8%.

Overall, the continued decline in yields, particularly at the longer end of the T-bill curve, suggests that the market remains well anchored, supported by liquidity and expectations of a stable interest rate environment.

Money Market Liquidity

Liquidity conditions remained stable during the week.

The average interbank rate declined marginally to 8.7%, reflecting a modest easing in money market conditions. This was largely driven by government payments, which helped offset liquidity pressures arising from tax remittances.

Interbank activity increased significantly, with volumes rising by 39.0% to Kshs 12.2 bn, compared to Kshs 8.8 bn recorded the previous week. The increase in trading volumes indicates improved activity in the interbank market, suggesting adequate liquidity distribution within the banking system.

Overall, liquidity conditions remain supportive of continued participation in government securities.

Kenya Eurobond Market

In the external debt market, Kenya’s Eurobond yields trended upward during the week, reflecting shifting investor sentiment.

The yield on the 7-year Eurobond issued in 2024 increased to 8.0% from 7.5%, representing the largest movement across the Eurobond curve. The upward adjustment likely reflects repricing following recent sovereign borrowing activity and evolving global risk conditions.

Despite the increase in yields, Kenya’s external position remains supported by improved reserve levels and continued access to international markets.

Exchange Rate and Foreign Reserves

The Kenyan Shilling weakened slightly during the week, depreciating to Kshs 129.3 per US dollar from Kshs 129.2 recorded previously. On a year-to-date basis, the currency has now depreciated by 19.4 basis points, marking a reversal from the appreciation trend observed in 2025.

Foreign exchange reserves declined marginally by 0.9% to USD 14.5 bn, although they remain strong, equivalent to 6.2 months of import cover, well above the statutory minimum of four months.

The relatively stable exchange rate and strong reserve position continue to provide a buffer against external shocks, even as global financial conditions evolve.

Fiscal Performance – February 2026 Exchequer Data

The National Treasury’s fiscal data for the eight months to February 2026 highlights continued pressure on revenue performance and increasing reliance on domestic borrowing.

Total revenue collected stood at Kshs 1,613.1 bn, equivalent to 87.8% of prorated targets, reflecting a shortfall primarily driven by weaker tax revenue performance. Tax revenues reached Kshs 1,516.7 bn, achieving 86.6% of prorated estimates.

In contrast, borrowing levels exceeded expectations. Total financing reached 102.3% of prorated targets, with domestic borrowing particularly elevated at 118.8% of prorated levels. This underscores the government’s continued reliance on the domestic market amid underperformance in external financing, where loans and grants remained significantly below target.

Expenditure absorption remained relatively strong at 93.0% of prorated levels, although development expenditure lagged at 69.4%, pointing to delays in capital project implementation.

Notably, public debt servicing costs reached Kshs 1,190.7 bn, equivalent to 73.8% of total revenue collected, highlighting the increasing fiscal burden of debt obligations.

Overall, the fiscal data suggests that while expenditure execution remains steady, revenue underperformance and elevated domestic borrowing continue to shape Kenya’s fiscal position.

Fuel Prices and Inflation Outlook

Fuel prices remained unchanged for the period 15th March to 14th April 2026, with pump prices for Super Petrol, Diesel and Kerosene maintained at Kshs 178.3, Kshs 166.5 and Kshs 152.8 per litre, respectively.

The stability in pump prices reflects continued government intervention through price stabilization mechanisms, alongside a relatively stable exchange rate.

However, underlying cost pressures remain evident. The average landing cost of petroleum products increased during February, particularly for diesel and kerosene, indicating rising global oil prices.

In the near term, fuel prices are expected to remain stable due to policy support and exchange rate stability. However, sustained increases in global oil prices—driven by geopolitical developments—pose an upside risk to fuel costs and, by extension, inflation.

Overall Assessment

The fixed income market remains supported by strong demand for government securities, stable liquidity conditions and a relatively resilient macroeconomic environment.

However, several trends are becoming more pronounced:

• Moderation in T-bill demand following peak subscription levels
• Continued downward pressure on yields, particularly for longer tenors
• Increased reliance on domestic borrowing amid revenue shortfalls
• Gradual upward pressure on Eurobond yields
• Emerging external and inflationary risks linked to global commodity prices

In the near term, market conditions are expected to remain supportive. However, fiscal dynamics, external financing conditions and inflation risks will remain key factors shaping the direction of Kenya’s fixed income market.