Fixed Income Market Update – 26th December 2025

Money Markets | T-Bills Primary Auction

T-bill demand weakened further during the week, with the market recording undersubscription for the second consecutive week. The overall subscription rate declined sharply to 22.5%, down from 67.3% the previous week, reflecting subdued investor appetite during the festive period and improved liquidity conditions in the banking system.

Investor preference remained skewed toward the shorter 91-day paper, which attracted bids worth Kshs 2.4 bn against the Kshs 4.0 bn on offer, translating to a 60.4% subscription rate, albeit lower than the 89.2% recorded in the prior week. Demand for longer tenors remained weak, with the 182-day paper recording a 7.1% subscription rate (down from 13.9%), while the 364-day paper saw subscriptions fall sharply to 22.8% from 111.9% the previous week.

The government accepted Kshs 5.40 bn out of Kshs 5.41 bn in bids received, representing an acceptance rate of 99.9%, signaling continued flexibility in issuance volumes amid weak demand.

Yields posted a mixed performance, with:

• 91-day yield declining by 4.7 bps to 7.73%,
• 364-day yield easing by 1.8 bps to 9.21%, and
• 182-day yield remaining unchanged at 7.80%.

The continued softening of short-end yields underscores ample system liquidity and reduced near-term funding pressure for the government.

Liquidity Conditions

Liquidity conditions tightened marginally during the week. The average interbank rate edged up slightly by 0.5 bps, remaining broadly stable at 9.0%, partly reflecting tax remittances that offset government payments. Meanwhile, average interbank volumes traded declined by 10.6% to Kshs 10.1 bn, down from Kshs 11.3 bn in the previous week, consistent with reduced market activity during the holiday period.

Kenya Eurobonds

In the international debt market, Eurobond yields trended downward, reflecting improved risk sentiment toward Kenya’s sovereign paper. The 12-year Eurobond issued in 2021 recorded the largest decline, with yields falling by 11.5 bps to 7.9% from 8.0% the previous week. The easing in yields suggests sustained investor confidence, supported by relative macroeconomic stability and easing global financial conditions.

Kenya Shilling & External Position

The Kenya Shilling depreciated marginally against the US Dollar by 3.3 bps, closing the week at Kshs 129.00, compared to Kshs 128.95 the previous week. On a year-to-date basis, however, the currency has appreciated by 24.0 bps, significantly outperforming its 17.6% depreciation recorded in 2024, highlighting improved external balance dynamics.

Kenya’s foreign exchange reserves rose slightly by 0.3% to USD 12.2 bn, providing an import cover of 5.3 months, comfortably above the statutory minimum of 4.0 months. The steady reserve position continues to underpin currency stability and external sector resilience.

Key Takeaways & Market Implications

• Persistent T-bill undersubscription signals reduced investor participation amid seasonal liquidity and softer government funding pressure.
• Short-term yields continue to drift lower, reinforcing the attractiveness of alternative money market instruments relative to T-bills.
• Eurobond yield compression reflects improving sovereign risk perception and stable macro fundamentals.
• Currency and reserves stability provide a supportive backdrop for fixed income markets heading into year-end.

Overall, fixed income markets remain characterized by ample liquidity, easing yields at the short end, and stable external fundamentals, positioning investors to reassess duration and income strategies as market activity normalizes in early 2026.