Kenya Fixed Income Market Update | 16 January 2026

1. Money Markets – Treasury Bills Primary Auction

Investor demand for government securities softened during the week, with Treasury bills undersubscribed for the first time in four weeks. The overall subscription rate declined to 76.5%, down from 128.4% recorded in the previous auction, signaling a pause in aggressive short-term positioning.

Interest in the 91-day paper improved modestly, with bids amounting to Kshs 1.4 bn against an offer of Kshs 4.0 bn, translating to a 34.3% subscription rate, higher than the 24.0% recorded the prior week. Demand for the 182-day paper rebounded sharply to 88.3%, up from 5.8%, suggesting renewed appetite for short-to-mid-tenor instruments. Conversely, demand for the 364-day paper softened to 81.5%, from a significantly elevated 292.8% in the previous week, reflecting reduced demand at the long end following recent heavy allocations.

The government accepted Kshs 18.2 bn out of Kshs 18.4 bn in bids received, translating to a high acceptance rate of 99.2%, highlighting continued preference for funding certainty despite weaker subscription levels.

Yields recorded marginal movements, remaining broadly stable:

• The 91-day yield increased by 2.6 bps to remain near 7.7%
• The 182-day yield declined by 0.7 bps to 7.8%
• The 364-day yield edged lower by 0.3 bps to 9.2%

Overall, the T-bill market continues to reflect a low-volatility yield environment, supported by contained inflation expectations and an accommodative monetary policy stance.

2. Primary Bond Market Activity

Bond Switch Auction

The Central Bank of Kenya released results for a bond switch from FXD1/2016/010 (0.6 years to maturity, 15.0% coupon) into FXD1/2022/015, with a longer 11.3-year tenor and a 13.9% coupon. This marks the third bond switch executed by the government, following similar operations in June 2020 and December 2022, aimed at smoothing near-term redemption pressures and extending the domestic debt maturity profile.

The switch attracted strong demand, with bids totaling Kshs 26.5 bn against an offer of Kshs 20.0 bn, representing an oversubscription rate of 132.5%. The government accepted Kshs 25.2 bn, equivalent to an acceptance rate of 95.0%.

The weighted average yield for the accepted bids settled at 13.2%, lower than the 13.9% recorded during the previous reopening in October 2025, reflecting improved investor confidence and easing risk premiums. With inflation at 4.5% (December 2025), the bond offers a real return of approximately 8.7%. After adjusting for the 10.0% withholding tax, the tax-equivalent yield relative to shorter-term instruments stands at approximately 14.0%, making the bond attractive on a risk-adjusted basis.

Ongoing Bond Offer

In addition, the government is seeking to raise Kshs 50.0 bn for budgetary support through the re-opening of:

• FXD3/2019/015 (8.4 years to maturity, 12.3% coupon)
• FXD1/2018/025 (17.3 years to maturity, 13.4% coupon)

The offer period runs from 22 January to 11 February 2026, with settlement scheduled for 16 February 2026. Our indicative bidding ranges stand at 12.25%–12.75% for FXD3/2019/015 and 13.50%–14.00% for FXD1/2018/025, reflecting prevailing yield expectations and curve positioning.

3. Liquidity Conditions

Liquidity in the interbank market tightened marginally, with the average interbank rate edging up by 0.2 bps to remain around 9.0%, largely due to tax remittances offsetting government payments. Interbank volumes declined by 20.7% to Kshs 12.1 bn, from Kshs 15.2 bn the previous week, indicating reduced short-term liquidity circulation among banks.

4. Eurobond Market

Kenya’s Eurobond yields continued on a downward trajectory, reflecting sustained investor confidence in the country’s external position. The 30-year Eurobond issued in 2018 recorded the largest movement, with yields declining by 11.0 bps to 8.8% from 8.9% the previous week.

5. Currency and External Position

The Kenyan Shilling appreciated marginally against the US Dollar by 0.8 bps, remaining stable at Kshs 129.3. On a year-to-date basis, the shilling has strengthened by 2.3 bps, though still below the 22.9 bps appreciation recorded in 2025.

Kenya’s foreign exchange reserves declined by 2.1% to USD 12.2 bn, from USD 12.5 bn, equivalent to 5.3 months of import cover, comfortably above the statutory minimum of 4.0 months.

6. Weekly Highlight – KRA Revenue Performance

The Kenya Revenue Authority delivered a strong revenue performance in December 2025, exceeding targets across all major categories. Total tax revenue reached Kshs 307.6 bn, outperforming the target of Kshs 285.0 bn by 8.0%.

• Exchequer revenue: Kshs 284.3 bn (108.6% of target)
• Customs & Border Control: Kshs 85.9 bn (103.5% of target)
• Domestic taxes: Kshs 221.3 bn (109.8% of target)

The strong outturn reflects resilient domestic economic activity, improved compliance, and effective revenue administration. KRA remains optimistic about meeting the FY 2025/26 revenue target of Kshs 2.968 tn, which is supportive of fiscal consolidation efforts and reduces pressure on domestic borrowing.

Overall Assessment:
The fixed income market remains stable, with yields largely range-bound, supported by contained inflation, disciplined monetary policy, and improving fiscal revenue performance. While short-term demand softened at the T-bill auction, strong participation in bond switches and Eurobond yield compression point to sustained investor confidence, particularly at the medium-to-long end of the curve.