Kenya Fixed Income Market Review | 9th January 2026

Executive Summary

Kenya’s fixed income market opened 2026 on a firm footing, supported by strong investor demand for government securities, stable yields, easing liquidity conditions, and improving macroeconomic fundamentals. Treasury bill and bond auctions attracted healthy participation, while inflation remained contained, the Kenya Shilling stayed stable, and foreign exchange reserves strengthened. On the macro front, Q3 2025 GDP growth accelerated to 4.9%, and Kenya’s Balance of Payments position improved significantly, reinforcing confidence in the country’s medium-term outlook.

Money Markets – Treasury Bills

During the week, Treasury bills were oversubscribed for the second consecutive week, with the overall subscription rate rising to 130.3%, up from 108.0% the previous week. This reflected continued investor appetite for government paper amid stable yields and ample system liquidity.

Investor preference for the 91-day paper moderated, with bids of Kshs 4.3 bn against an offer of Kshs 4.0 bn, translating to a 108.5% subscription rate, lower than the 158.2% recorded the prior week. Demand for the 182-day paper eased to 96.1%, down from 112.9%, while appetite for the 364-day paper strengthened, with subscription rising to 173.2% from 83.0%.

The government accepted Kshs 26.2 bn out of Kshs 31.3 bn bids received, translating to an acceptance rate of 83.7%, signaling continued selectivity in managing borrowing costs.

Yields remained broadly stable:

• 91-day: 7.7% (down marginally by 0.1 bps)
• 182-day: 7.8% (unchanged)
• 364-day: 9.2% (down marginally by 0.5 bps)

The stability in yields reflects sustained confidence in Kenya’s macroeconomic environment, supported by easing inflation, currency stability, and improving liquidity.

Primary Treasury Bond Auctions

The Central Bank of Kenya released auction results for the reopened FXD1/2019/020 and FXD1/2022/025 bonds, with remaining maturities of 13.2 years and 21.8 years, and coupon rates of 12.9% and 14.2%, respectively.

The bond auctions were oversubscribed, with total bids of Kshs 71.5 bn against an offer of Kshs 60.0 bn, translating to a 119.2% subscription rate. The government accepted Kshs 60.6 bn, representing an 84.7% acceptance rate.

The weighted average yields came in at:

• 13.3% for FXD1/2019/020 (slightly lower than the 13.4% at the previous reopening in November 2021)
• 13.8% for FXD1/2022/025 (slightly higher than the 13.7% recorded at its last reopening in November 2025)

With inflation at 4.5% as of December 2025, the bonds offer attractive real returns of approximately 8.8% and 9.3%, respectively. After adjusting for withholding tax, the tax-equivalent yields for shorter-term bonds stand at 14.1% and 14.6%, reinforcing the appeal of longer-dated government securities for income-focused investors.

Liquidity Conditions

Liquidity in the money markets eased slightly during the week. The average interbank rate declined marginally by 1.2 bps to remain stable at 9.0%, supported by government payments offsetting tax remittances.

However, interbank activity moderated, with average daily volumes traded declining by 22.6% to Kshs 7.5 bn, from Kshs 9.7 bn the previous week. Despite lower volumes, liquidity conditions remained sufficient to support market stability and credit intermediation.

Kenya Eurobonds

In contrast to the domestic market, Eurobond yields moved higher, reflecting renewed sensitivity to global risk sentiment and interest rate expectations.

The yield on the 13-year Eurobond issued in 2021 rose by 33.7 bps to 8.1%, from 7.8% the previous week. This uptick highlights Kenya’s continued exposure to external financing conditions, even as domestic fundamentals improve.

Kenya Shilling and Foreign Exchange Reserves

The Kenya Shilling appreciated marginally against the US Dollar, strengthening by 3.1 bps to close the week at Kshs 129.0, from Kshs 129.1. On a year-to-date basis, the shilling has appreciated by 3.1 bps, supported by steady foreign exchange inflows and improved balance of payments dynamics.

Kenya’s foreign exchange reserves increased by 1.8% to USD 12.4 bn, equivalent to 5.3 months of import cover, well above the statutory minimum of four months. The stronger reserve position continues to underpin currency stability and external resilience.

Macroeconomic Highlights

Q3 2025 GDP Growth

Kenya’s economy expanded by 4.9% in Q3 2025, accelerating from 4.2% in Q3 2024. Growth was driven by a strong rebound in Mining and Quarrying (16.6%), Construction (6.7%), and Electricity and Water Supply (3.6%).

While Agriculture and Forestry, the largest contributor to GDP, recorded slower growth of 3.2%, the broader economy demonstrated resilience, supported by recovery in extractive industries, construction, and selected service sectors.

Financial and Insurance Services

The Financial and Insurance Services sector recorded improved growth of 5.4%, up from 4.7%, supported by easing credit conditions and improved capital market performance. Notably, activity on the Nairobi Securities Exchange surged, with both trading volumes and values increasing sharply on a year-on-year basis.

Balance of Payments

Kenya’s Balance of Payments position improved significantly, shifting to a surplus of Kshs 63.7 bn in Q3 2025, from a deficit of Kshs 17.8 bn in Q3 2024. This improvement was driven by stronger capital inflows and a reduced financial account deficit, despite a widening current account deficit driven by merchandise trade.

Purchasing Managers’ Index (PMI)

The Stanbic Bank PMI remained in expansion territory at 53.7 in December 2025, marking the fourth consecutive month above the 50.0 threshold. Business conditions continued to improve, supported by strong demand, tourism activity, and year-end trading, although input cost pressures showed signs of reacceleration.

Outlook

Kenya’s fixed income market enters 2026 supported by contained inflation, easing monetary policy, stable domestic yields, and improving macroeconomic indicators. The Central Bank’s accommodative stance, coupled with resilient business sentiment and stronger external buffers, provides a supportive environment for income-seeking investors.

However, risks remain, including global interest rate volatility, elevated Eurobond sensitivity, and domestic cost-of-living pressures. Going forward, sustained fiscal discipline, prudent debt management, and continued recovery in private sector activity will be critical to maintaining market stability and investor confidence.

Sources: Central Bank of Kenya (CBK), Kenya National Bureau of Statistics (KNBS), Business Daily