Fixed Income Market Update – 29 August 2025

T-Bills Primary Auction

• T‑bill interest surged with the auction oversubscribed for the second consecutive week. Overall subscription jumped to 133.5%, up from 113.5% previously.
• Demand for the 91-day paper exploded, attracting bids worth Kshs 20.0 bn for a Kshs 4.0 bn offer, translating to a 499.2% subscription rate—a massive rise from 194.3%.
• Conversely, the 182-day paper saw a sharp drop in subscription to 18.0%, down from 120.8%, while the 364-day paper improved to 102.5% from 73.9%.
• The government accepted Kshs 31.9 bn out of Kshs 32.0 bn received, yielding an acceptance rate of 99.6%.
• Yields continued to inch down:
  • 182-day: –2.1 bps to 8.05%,
  • 91-day: marginal drop of 0.01 bps to 7.99%,
  • 364-day: –0.4 bps to 9.56%.

Fiscal Snapshot (FY 2025/26 to date):

• Total securities advertised: Kshs 406.0 bn; accepted bids: Kshs 554.2 bn (T‑bills: Kshs 212.8 bn; bonds: Kshs 341.4 bn).
• Redemptions: Kshs 218.2 bn (all T‑bills), resulting in a domestic borrowing surplus of Kshs 336.0 bn.

Primary Bond Market Outlook:

• The government is set to reopen bonds targeting Kshs 40.0 bn (FXD1/2018/020 & FXD1/2022/025) and Kshs 20.0 bn (SDB1/2011/030), with sale windows running between 26 August and early/mid-September.
• Indicative yield ranges:
  • FXD1/2018/020: 13.25%–13.55%
  • FXD1/2022/025: 13.75%–14.50%
  • SDB1/2011/030: 13.15%–13.65%

Market Liquidity & Interbank Activity

• Liquidity briefly improved, with the average interbank rate falling by 10.1 bps to 9.5%, partly helped by tax inflows.
• Trading volumes surged by 527.5% to Kshs 38.9 bn, up from Kshs 6.2 bn last week.

Kenya Eurobonds

• The 10-year Eurobond (2018 issue) posted significant gains, with yields falling 44.4 bps to 7.0%, boosting investor confidence.

Currency & Reserves

• The Kenya Shilling held steady at Kshs 129.2/USD, showing marginal variation of 0.3 bps week-on-week. YTD appreciation stands at 4.9 bps—well off the 2024’s +17.4%.
• Forex reserves dipped 1.3% to USD 10.9 bn, maintaining a solid 4.8 months of import cover, comfortably above statutory and regional benchmarks.

Weekly Highlights

Inflation (August 2025)

• Headline inflation rose to 4.5% y/y, up from 4.1% in July—driven by food (+8.3%), transport (+4.4%), and housing/utilities (+0.8%). Month-on-month inflation stood at 0.3%. Importantly, inflation remains within the Central Bank’s target (2.5%–7.5%) for the 26th month running. Reuters+1

CBK Introduces Revised Risk-Based Credit Pricing: KESONIA Model

• The CBK has rolled out a new Risk-Based Credit Pricing Model (RBCPM)—effective 1 September 2025 for new variable-rate loans. This model uses KESONIA (Kenya Shilling Overnight Interbank Average) as the reference benchmark, replacing CBR in pricing alongside a premium (“K”) and fees. Xinhua News+7Central Bank of Kenya+7Bowman’s Law+7
• Commercial banks are required to disclose lending rates, premiums, and charges on their websites and the Total Cost of Credit (TCC) platform. The transition for existing loans is scheduled by 28 February 2026. Central Bank of Kenya+6Central Bank of Kenya+6Kenyan Wall Street+6

Foreign Investment Survey (2024) Released

• The KNBS, CBK, and KenInvest released the 2024 Foreign Investment Survey—providing key insights on private capital flows, the investment climate, and implications for Kenya’s external accounts and investment policies.

Outlook & Key Takeaways

• Investor demand remains strong, particularly for short-term papers.
• Liquidity and market stability continue to improve.
• CBK’s reforms (KESONIA, RBCPM) enhance transparency and align Kenya with global best practices.
• Inflation is contained, easing pressure on monetary tightening.
• Strong reserves and a stable currency offer a supportive backdrop for fixed income and monetary policy.

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