Kenya Fixed Income Market Recap – October 2025

T-Bills Primary Auction Performance

During October 2025, activity in the short-term government securities market remained moderate, with T-bills undersubscribed for most of the month. The average overall subscription rate came in at 97.6%, down from 118.9% in September 2025.

Investor appetite shifted slightly across maturities:

• The 91-day paper recorded an average subscription rate of 136.6%, lower than 235.6% in September.
• The 182-day paper rose to 46.2% from 34.7%.
• The 364-day paper declined to 133.2% from 156.5%.

The average yields on Treasury bills trended downward, reflecting easing short-term borrowing costs and stable inflation expectations.

• 91-day yield: fell by 8.8 bps to 7.9%,
• 182-day yield: decreased by 9.7 bps to 7.9%,
• 364-day yield: dropped by 14.3 bps to 9.4%.

In total, the government accepted Kshs 93.4 billion of Kshs 93.7 billion bids received, representing a 99.6% acceptance rate, higher than 89.7% in September.

T-Bonds & Government Borrowing

The October bond auction continued to attract strong investor interest, with the FXD1/2018/015 and FXD1/2021/020 (7.7-year and 15.9-year maturities) recording a 237.8% oversubscription, receiving bids worth Kshs 118.9 billion against Kshs 50.0 billion offered. The government accepted Kshs 85.3 billion, achieving a 71.7% acceptance rate.

The weighted average yields for accepted bids were 12.7% and 13.5%, lower than previous reopenings—reflecting stable investor confidence and controlled inflation expectations (inflation held at 4.6%).

Domestic Borrowing Position

So far in FY’2025/26, the government has advertised Kshs 732.0 billion, accepted Kshs 917.1 billion, and redeemed Kshs 440.8 billion, creating a domestic borrowing surplus of Kshs 476.3 billion. This underscores strong local investor participation amid subdued external financing inflows.

Bond Buyback Initiative

The National Treasury also announced a Kshs 30.0 billion bond buyback for FXD1/2023/003 (coupon 14.2%, tenor 0.6 years). The program, running through mid-November, aims to reduce short-term redemption pressure. However, the offer is expected to attract limited uptake, as investors are likely to hold to maturity unless pricing incentives are favorable.

Upcoming Issuance

The CBK reopened FXD1/2012/020 (12.0% coupon, 7.0 years to maturity) and FXD1/2022/015 (13.9% coupon, 11.4 years to maturity), targeting Kshs 40.0 billion.
Recommended bidding ranges:

• FXD1/2012/020 → 12.50%–13.00%
• FXD1/2022/015 → 14.20%–14.70%

Secondary Bond Market & Yield Curve

The secondary bond market experienced reduced activity, with turnover declining 24.9% to Kshs 169.9 billion, from Kshs 226.4 billion in September. This slowdown was mainly driven by reduced trading by commercial banks. However, on a year-on-year basis, turnover rose 40.7%, signaling sustained depth and liquidity in the market.

The yield curve continued to normalize, shifting from the humped structure of 2024 to a gentle upward slope, as short-term yields declined and long-term yields rose. The adjustment reflects greater investor confidence in near-term stability but lingering concerns about long-term fiscal sustainability and debt rollover risks.

Liquidity Conditions

Money market liquidity eased modestly during the month, with the average interbank rate falling 0.2 percentage points to 9.3%, from 9.5% in September. The average interbank volumes edged up 0.8% to Kshs 12.2 billion, highlighting balanced short-term liquidity flows.

By month-end, liquidity remained ample but unevenly distributed, with tax remittances temporarily tightening positions before being offset by government disbursements.

Eurobond Performance

Kenya’s Eurobonds posted a mixed performance in October:

• The 7-year 2024 issue declined 12.8 bps to 7.8%,
• The 10-year 2018 issue rose 12.8 bps to 6.0%,
• The 12-year 2019 issue fell 20.0 bps to 8.1%.

Overall, the mixed movement suggests stabilizing investor sentiment toward Kenyan sovereign debt, bolstered by a more predictable fiscal path and the successful execution of recent refinancing operations.

Kenya Shilling & Forex Reserves

The Kenya Shilling remained stable, depreciating marginally by 0.08 bps to close October at Kshs 129.2 per USD, compared to Kshs 129.2 at the end of September.
On a year-to-date basis, the shilling has appreciated by 5.2 bps, supported by improving investor confidence, diaspora inflows, and stable external financing.

Forex reserves rose 13.8% to USD 12.2 billion, equivalent to 5.3 months of import cover, comfortably above statutory and regional convergence thresholds.

Inflation Overview – October 2025

Headline inflation remained unchanged at 4.6%, within the CBK’s target band (2.5%–7.5%) for the 28th consecutive month.

• Food & Non-Alcoholic Beverages: +8.0%
• Transport: +4.8%
• Housing & Utilities: +1.9%

Month-on-month inflation rose slightly by 0.2%, indicating modest price pressures. Fuel prices remained steady (Super Petrol at Kshs 184.5, Diesel at Kshs 171.5 per litre). The recent 25 bps rate cut to 9.25% is expected to stimulate credit growth and gradually increase liquidity, but inflationary pressures remain contained in the short term.

Outlook

The fixed income market in October reflected macro stability, anchored inflation, and steady domestic investor appetite. Going forward, market performance will hinge on:

• The success of the bond buyback program,
• The trajectory of domestic borrowing, and
• External financing flows, particularly from multilateral partners.

Stable inflation and a strong reserve position suggest continued confidence in the Kenyan Shilling and an improved outlook for interest rate stability heading into the final quarter of 2025.

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