Kenya Fixed Income Market Update – 14th March 2025

This week’s fixed income market saw continued activity in Treasury bills (T-bills), Eurobonds, and foreign exchange reserves, alongside key developments in fuel prices. Below, we break down the key highlights and what they mean for investors.

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

T-bills remained popular among investors, with the overall subscription rate at 122.7%, down from 210.7% the previous week. This marks the sixth consecutive week of oversubscription, reflecting sustained investor confidence in government securities.

• 91-Day T-Bill: Investor preference for the shorter 91-day paper continued, with bids worth Kshs 7.5 bn against an offered Kshs 4.0 bn, translating to an oversubscription rate of 188.1% (down from 598.8% the previous week).
• 182-Day T-Bill: Subscription rates decreased to 98.0%, down from 124.4% the previous week.
• 364-Day T-Bill: Subscription rates also declined to 121.1%, down from 141.7% the previous week.

The government accepted Kshs 26.9 bn out of the Kshs 29.4 bn bids received, translating to an acceptance rate of 91.3%.

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

• 91-Day T-Bill: Yield decreased by 0.5 bps to 8.9% (from 8.94% the previous week).
• 182-Day T-Bill: Yield dropped by 3.6 bps to 9.1% (from 9.2% the previous week).
• 364-Day T-Bill: Yield decreased by 2.3 bps to 10.5% (from 10.5% the previous week).

2. Eurobond Yields on the Rise

The yields on Kenya’s Eurobonds increased during the week, with the 13-year Eurobond issued in 2021 seeing the most significant rise. Its yield increased by 13.5 bps to 10.1%, up from 9.9% the previous week. This rise in yields reflects increased investor caution in the international bond market.

3. Kenyan Shilling and Forex Reserves

• Kenyan Shilling: The shilling depreciated marginally against the US dollar by 20.7 bps, trading at Kshs 129.5 compared to Kshs 129.2 the previous week. Year-to-date, the shilling has depreciated by 15.5 bps, a contrast to the 17.4% appreciation recorded in 2024.
• Forex Reserves: Kenya’s forex reserves increased by 10.0% to USD 10.1 bn, up from USD 9.1 bn the previous week. This increase is largely attributable to the inflow of funds from the issuance of a new USD 1.5 bn bond, which was used to buy back the 7-year USD 900.0 mn Eurobond. The reserves now cover 5.1 months of import cover, above the statutory requirement of 4.0 months.

4. Fuel Prices Stabilize

The Energy and Petroleum Regulatory Authority (EPRA) released its monthly statement on fuel prices, effective from 15th March 2025 to 14th April 2025. Notably, the maximum retail prices for Super Petrol, Diesel, and Kerosene remained unchanged at Kshs 176.6, Kshs 167.1, and Kshs 151.4 per litre, respectively.

Key Insights:

• Landing Costs: The average landing costs for Diesel and Super Petrol increased by 1.4% and 1.3%, respectively, in February 2025, while Kerosene saw a 1.4% decrease.
• Price Stabilization Mechanism: The government has increased spending on the petroleum pump price stabilization mechanism, subsidizing Kshs 7.0, Kshs 10.0, and Kshs 10.4 per litre for Petrol, Diesel, and Kerosene, respectively. This has helped stabilize fuel prices despite rising landing costs.

Key Takeaways for Investors

1. T-Bills Remain Attractive: Despite a decline in subscription rates, T-bills continue to attract strong investor interest, particularly the 91-day paper. However, declining yields may prompt investors to explore other fixed-income options.
2. Eurobond Caution: Rising Eurobond yields reflect increased investor caution in international markets, which could impact Kenya’s future borrowing costs.
3. Forex Reserves Boost: The increase in forex reserves to USD 10.1 bn provides a buffer against external shocks and supports the shilling’s stability.
4. Fuel Price Stability: The government’s price stabilization mechanism has successfully kept fuel prices steady, benefiting consumers and businesses alike.

Conclusion

The fixed income market remains dynamic, with T-bills and Eurobonds offering insights into both local and international investor sentiment. The stabilization of fuel prices and the increase in forex reserves are positive developments for Kenya’s economy, providing a stable environment for investors.

Stay tuned for next week’s update, where we’ll provide further insights into market trends and their implications for your investment strategy.