Kenya Fixed Income Market Update – 16 January 2026

Overview

Kenya’s fixed income market recorded continued investor engagement, with Treasury bills oversubscribed for the third consecutive week, albeit with a notable shift in demand toward longer-dated securities. While headline subscription levels remained strong, investor appetite for shorter tenors weakened significantly, reflecting evolving yield expectations, duration preferences, and liquidity considerations.

At the macro level, external conditions continued to improve, supported by declining Eurobond yields, stable foreign exchange reserves, and a broadly stable Kenya Shilling. Domestically, easing fuel prices and steady inflation expectations provided some relief to the cost environment, although fiscal pressures remained evident as domestic borrowing continued to exceed prorated targets.

Money Markets – Treasury Bills Primary Auction

During the week, Treasury bills were oversubscribed for the third consecutive week, with the overall subscription rate coming in at 128.4%, slightly lower than the 130.3% recorded the previous week.

Investor demand showed a sharp divergence across tenors:

• 91-day paper:
  Investor appetite weakened considerably, with bids of Kshs 1.0 bn against an offer of Kshs 4.0 bn, translating to a subscription rate of 24.0%, down sharply from 108.5% the previous week.
• 182-day paper:
  Demand declined further, with subscription falling to 5.8% from 96.1% recorded the prior week, indicating limited appetite for mid-tenor exposure.
• 364-day paper:
  In contrast, demand for the longer-dated paper strengthened materially, with subscription rising to 292.8% from 173.2% the previous week, underscoring investor preference for yield lock-in amid a stable inflation and interest rate outlook.

The government accepted Kshs 28.5 bn out of Kshs 30.8 bn in bids received, translating to an acceptance rate of 92.5%, reflecting sustained funding requirements and continued reliance on domestic markets.

Yields recorded a mixed performance:

• 91-day: declined by 2.7 bps to 7.7%
• 182-day: remained unchanged at 7.8%
• 364-day: edged lower by 0.1 bps to 9.2%

Overall, the auction outcomes point to investors increasingly positioning along the long end of the curve, as yield compression moderates and policy rates stabilize.

Liquidity Conditions

Liquidity in the money markets tightened marginally during the week, with the average interbank rate increasing slightly by 0.7 bps to 9.0%, remaining broadly stable compared to the previous week.

However, interbank activity picked up, with average volumes traded rising by 103.4% to Kshs 15.2 bn, from Kshs 7.5 bn the previous week. The increase reflects short-term liquidity redistribution, largely influenced by tax remittances offsetting government payments.

Kenya Eurobonds

Kenya’s Eurobond yields continued on a downward trajectory, reinforcing improving investor confidence in the country’s external position.

The 7-year Eurobond issued in 2024 recorded the largest movement, with yields declining by 31.9 bps to 7.0% from 7.3% the previous week. The easing in yields reflects:

• Improved external liquidity buffers
• A relatively stable currency
• Reduced refinancing risk following liability management operations

Foreign Exchange Market

The Kenya Shilling depreciated marginally against the US Dollar by 1.6 bps, closing the week at Kshs 129.0, largely unchanged from the previous week.

On a year-to-date basis, the Shilling has appreciated slightly by 1.5 bps, although this remains below the 22.9 bps appreciation recorded in 2025. The currency continues to benefit from:

• Stable capital inflows
• Improved balance of payments dynamics
• Adequate foreign exchange reserves

Kenya’s foreign exchange reserves increased by 0.8% to USD 12.5 bn, equivalent to 5.4 months of import cover, comfortably above the statutory minimum of four months.

Weekly Highlights

Fuel Prices (Effective 15 January – 14 February 2026)

During the week, the Energy and Petroleum Regulatory Authority (EPRA) announced a reduction in fuel prices, marking the first price cut in four months:

• Super Petrol: down Kshs 2.0 to Kshs 182.5 per litre
• Diesel: down Kshs 1.0 to Kshs 170.5 per litre
• Kerosene: down Kshs 1.0 to Kshs 153.8 per litre

The decline was driven by lower global landing costs and a relatively stable exchange rate. The easing in fuel prices is expected to support moderation in inflationary pressures and improve household purchasing power.

Exchequer Performance – December 2025

The National Treasury released Exchequer data for the six months ended 31 December 2025, revealing continued fiscal strain.

Key highlights include:

• Total revenue collected amounted to Kshs 1,249.8 bn, representing 90.7% of prorated targets
• Tax revenues underperformed, achieving 88.4% of prorated levels
• Domestic borrowing exceeded targets, reaching 122.1% of prorated levels
• Debt servicing absorbed 75.3% of cumulative revenues, underscoring elevated fiscal rigidity
• Development expenditure absorption remained low at 71.3%, reflecting slow implementation of capital projects

Despite the fiscal pressures, business sentiment showed resilience, with the PMI remaining in expansion territory at 53.7, signaling gradual recovery in economic activity.

Outlook

Going forward, the fixed income market is expected to remain anchored by stable monetary policy, easing inflation expectations, and improving external buffers. However, fiscal execution risks, particularly revenue underperformance and heavy reliance on domestic borrowing, will continue to shape yield dynamics.

Investor behavior is likely to remain selective, with sustained preference for longer tenors as yield compression stabilizes and confidence in macroeconomic conditions improves.