Kenya Fixed Income Market Weekly Update – 7th March 2025

This week’s fixed income market saw significant activity, with oversubscribed Treasury bills (T-bills), a re-opened Treasury bond auction, and the results of Kenya’s Eurobond buyback. Below, we break down the key developments and what they mean for investors.

1. Treasury Bills (T-Bills) Oversubscribed for the Fifth Consecutive Week

T-bills remained highly attractive to investors, with the overall subscription rate rising to 210.7%, up from 152.3% the previous week. This marks the fifth consecutive week of oversubscription, reflecting strong investor confidence in government securities.

• 91-Day T-Bill: Investor preference for the shorter 91-day paper persisted, with bids worth Kshs 24.0 bn against an offered Kshs 4.0 bn, translating to an oversubscription rate of 598.8% (up from 448.9% the previous week).
• 182-Day T-Bill: Subscription rates increased to 124.4%, up from 69.0% the previous week.
• 364-Day T-Bill: Subscription rates also rose to 141.7%, up from 117.0% the previous week.

The government accepted Kshs 42.5 bn out of the Kshs 50.6 bn bids received, translating to an acceptance rate of 84.1%.

Yield Trends:
Yields on T-bills continued their downward trajectory:

• 91-Day T-Bill: Yield decreased by 1.4 bps to 8.92% (from 8.94% the previous week).
• 182-Day T-Bill: Yield dropped by 8.9 bps to 9.15% (from 9.24% the previous week).
• 364-Day T-Bill: Yield saw a marginal decline of 0.3 bps to 10.50% (unchanged from the previous week).

2. Re-Opened Treasury Bond FXD1/2018/025 Auction Results

The Central Bank of Kenya re-opened the FXD1/2018/025 bond, which has a tenor to maturity of 18.3 years and a fixed coupon rate of 13.4%. The bond was oversubscribed, with a subscription rate of 188.0%, receiving bids worth Kshs 47.0 bn against the offered Kshs 25.0 bn.

• Acceptance Rate: The government accepted Kshs 35.2 bn worth of bids, translating to an acceptance rate of 75.0%.
• Weighted Average Yield: The accepted bids had a weighted average yield of 13.8%, slightly below the expected range of 13.85%-14.55% but higher than the 13.5% recorded in the last auction in November 2020.
• Real Return: With Kenya’s inflation rate at 3.5% as of February 2025, the bond offers a real return of 10.3%, making it an attractive option for long-term investors.

3. Kenya’s Eurobond Buyback Results

The Government of Kenya released the results of its USD 900.0 mn Eurobond buyback offer, which closed on 3rd March 2024. The buyback was undersubscribed, with investors tendering USD 579.7 mn, translating to a subscription rate of 64.4%.

• Outcome: Kenya was unable to fully retire the bond as planned, leaving USD 320.3 mn of the bond still outstanding. This amount will need to be repaid at maturity.
• Implications: The undersubscription highlights investor caution, possibly due to global market conditions or the offered buyback price of USD 1,002.5 per USD 1,000.0 plus accrued interest.

4. Stanbic Bank’s Purchasing Managers’ Index (PMI)

Stanbic Bank’s monthly PMI for February 2025 showed a slight improvement in business conditions, with the index rising to 50.6, up from 50.5 in January 2025. This marks the fifth consecutive month that the index has remained above the 50.0 neutral mark, signaling sustained economic activity.

• Key Drivers: The marginal improvement was supported by increased output, new orders, and employment growth.
• Implications: The PMI data suggests a steady, albeit slow, recovery in Kenya’s private sector, which could positively impact fixed income markets in the medium term.

Key Takeaways for Investors

1. T-Bills Remain Attractive: The consistent oversubscription of T-bills reflects strong investor confidence, particularly in the shorter 91-day paper. However, declining yields may prompt investors to explore other fixed-income options for higher returns.
2. Long-Term Bonds Offer Value: The oversubscribed FXD1/2018/025 bond, with its 13.8% yield and 10.3% real return, presents a compelling option for long-term investors seeking stability and inflation-beating returns.
3. Eurobond Buyback Signals Caution: The undersubscribed Eurobond buyback highlights investor caution, which could influence Kenya’s future borrowing costs in international markets.
4. Economic Recovery Continues: The slight improvement in the PMI suggests a gradual recovery in Kenya’s private sector, which could support fixed income markets in the coming months.

Conclusion

The fixed income market remains dynamic, with T-bills and Treasury bonds offering attractive opportunities for investors. However, the undersubscribed Eurobond buyback serves as a reminder of the importance of monitoring global market conditions and investor sentiment.

Stay tuned for next week’s update, where we’ll provide further insights into Kenya’s fixed income market and its implications for your investment strategy.