Kenya’s fixed income market continued to reflect strong investor demand for government securities during the week ending 20th March 2026, with Treasury bills remaining oversubscribed for the eighth consecutive week. The sustained demand highlights continued liquidity within the financial system and a preference for relatively lower-risk instruments, even as yields continue to trend downward.

At the same time, developments in the money market and external sector indicate emerging pressure points, particularly in liquidity conditions, exchange rate stability, and global investor sentiment.

Money Markets, T-Bills Primary Auction

Treasury bills remained oversubscribed, with the overall subscription rate coming in at 146.9%, albeit lower than the 182.3% recorded in the previous week. The moderation in overall demand reflects a more balanced distribution of investor appetite across tenors, even as strong participation persists.

Investor preference continued to shift toward the shorter end of the curve. The 91-day paper remained the most attractive, recording a subscription rate of 361.3%, up significantly from 124.5% in the previous week. This indicates a clear preference for shorter-duration instruments, likely driven by expectations of further rate adjustments and the desire to maintain liquidity flexibility.

The 182-day paper recorded improved demand, with subscription rising to 103.0% from 78.9%, signaling renewed interest in mid-tenor instruments. In contrast, demand for the 364-day paper softened significantly, with subscription declining to 105.1% from 308.7%, suggesting reduced appetite for longer-duration exposure amid declining yields.

The government accepted Kshs 29.1 bn out of Kshs 35.3 bn in total bids, translating to an acceptance rate of 82.5%, reflecting a relatively accommodative borrowing stance.

Yields continued to show a downward bias overall, although with mixed movements across tenors. The 364-day yield declined by 13.6 bps to 8.3%, reinforcing the trend of easing rates in the longer end of the curve. The 182-day yield decreased marginally, remaining around 7.8%, while the 91-day yield increased slightly by 0.4 bps to 7.6%, indicating relative stability at the short end.

Overall, the auction results reflect a market characterized by strong demand, declining yields, and a clear preference for shorter-duration securities.

Liquidity Conditions

Liquidity in the money markets tightened slightly during the week. The average interbank rate increased marginally by 0.8 bps to 8.7%, remaining broadly stable but signaling mild pressure within the system.

The tightening in liquidity was largely attributable to tax remittances, which absorbed liquidity and offset the impact of government payments.

Interbank activity softened marginally, with average volumes declining by 2.1% to Kshs 12.0 bn, from Kshs 12.2 bn recorded in the previous week. This suggests slightly reduced activity among banks, consistent with tighter liquidity conditions.

Overall, liquidity remains relatively stable but shows signs of short-term tightening, driven by cyclical factors such as tax flows.

Kenya Eurobonds

Kenya’s Eurobond yields moved upward during the week, reflecting increased risk premiums in the external market.

The 7-year Eurobond issued in 2024 recorded the largest increase, with yields rising by 50.0 bps to 8.0%, from 7.5% in the previous week.

The upward movement in Eurobond yields signals a shift in investor sentiment toward emerging market debt, potentially influenced by global financial conditions, interest rate expectations, and risk reassessment in frontier markets.

Kenya Shilling

The Kenyan Shilling depreciated during the week, weakening by 17.0 bps to Kshs 129.5 against the US Dollar, from Kshs 129.3 recorded the previous week.

On a year-to-date basis, the currency has depreciated by 36.4 bps, a reversal from the 22.9 bps appreciation recorded in 2025, indicating emerging pressure on the currency.

The depreciation reflects a combination of external and domestic factors, including global dollar strength, capital flow dynamics, and demand for foreign currency.

Foreign Exchange Reserves

Kenya’s foreign exchange reserves declined during the week, decreasing by 1.2% to USD 14.3 bn, from USD 14.5 bn recorded the previous week.

Despite the decline, reserves remain at a comfortable level equivalent to 6.1 months of import cover, well above the statutory requirement of 4.0 months, providing a sufficient buffer against short-term external shocks.

Overall Assessment and Outlook

The fixed income market continues to be supported by strong investor demand and high liquidity levels, as evidenced by sustained oversubscription in Treasury bill auctions.

However, several emerging trends are shaping the market outlook:

• Declining yields, particularly on longer-duration instruments, reflecting easing monetary conditions
• Increased preference for shorter tenors, indicating cautious investor positioning
• Tightening liquidity conditions, driven by cyclical factors such as tax remittances
• Rising Eurobond yields, signaling increased external risk perception
• Shilling depreciation, pointing to emerging currency pressures

In the near term, the fixed income market is expected to remain stable, supported by continued domestic demand and accommodative monetary policy. However, external factors, including global interest rate movements and investor sentiment toward emerging markets, will remain key determinants of market direction.