Kenya Fixed Income Market Update – 2nd May 2025

T-Bills Market Performance

During the week, the Treasury bills market witnessed its first undersubscription in five weeks, with the overall subscription rate coming in at 76.6%, a sharp drop from 178.5% recorded the previous week. The weak demand was most evident in the 91-day paper, which saw bids of only Kshs 2.2 bn against an offer of Kshs 4.0 bn—translating to a 54.6% undersubscription, a stark contrast to the 401.4% oversubscription recorded the prior week.

• 182-day paper subscriptions plummeted to 12.8% from 152.2%, while
• 364-day paper subscriptions increased to 149.1% from 115.7%.

Despite the lower investor appetite, the government accepted the full Kshs 18.4 bn in bids received, reflecting a 100% acceptance rate.

T-Bill Yields – Mixed Performance

• 91-day paper: ↓ 3.8 bps to 8.41%
• 182-day paper: ➖ Unchanged at 8.60%
• 364-day paper: ↓ 1.5 bps to 10.01%

The subdued yield movement reflects expectations of stable short-term rates amidst the current monetary environment.

Liquidity Conditions

Liquidity in the interbank market tightened marginally, with the average interbank rate rising by 3.0 bps to 9.9%, mostly due to government payments being offset by tax remittances. Interbank volumes fell by 28.6% to Kshs 16.7 bn, indicating slower overnight activity compared to the previous week’s Kshs 23.3 bn.

Kenya Eurobonds Performance

Kenya’s Eurobonds recorded a mixed performance during the week:

• The 12-year Eurobond (2019 issue) saw its yield increase by 19.8 bps to 11.1%.
• The 7-year Eurobond (2019 issue) saw its yield fall by 49.4 bps to 8.4%.

These variations may reflect shifting investor sentiment and repositioning ahead of expected global monetary policy cues.

Primary Bond Auction – FXD1/2022/015 & FXD1/2022/025

The CBK reopened two long-term bonds:

• FXD1/2022/015 (12 years): Coupon – 13.9%
• FXD1/2022/025 (22.5 years): Coupon – 14.2%

Both were oversubscribed, achieving a 114.2% subscription rate on Kshs 50.0 bn offered, with Kshs 57.1 bn in bids received and Kshs 50.4 bn accepted (88.2% acceptance rate).

The weighted average yields for the two bonds came in at:

• 13.9% for FXD1/2022/015 (vs 13.8% in March)
• 14.5% for FXD1/2022/025 (vs 14.2% in March)

Given the April 2025 inflation rate of 4.1%, the real returns stand at:

• 9.8% (FXD1/2022/015)
• 10.4% (FXD1/2022/025)

After adjusting for withholding tax, the equivalent pre-tax yields for bonds taxed at 15% would be:

• 14.7% and 15.4%, respectively.

Inflation Update – April 2025

According to the Kenya National Bureau of Statistics (KNBS), the headline inflation rose to 4.1% in April, from 3.6% in March 2025—the highest in 2025 so far. The uptick was driven by:

• Food & Non-Alcoholic Beverages: +7.1%
• Transport: +2.3%
• Housing, Utilities, and Energy: +0.8%

This slight inflationary uptick may reduce the real return on fixed income assets in the near term.

Key Takeaway

The week’s developments signal a temporary investor shift away from short-term securities, possibly due to expectations of stabilizing yields or rising inflation, leading to mixed subscription outcomes and continued scrutiny of macroeconomic data. The increased yields on long-term bonds despite inflation indicate strong investor appetite for duration and attractive real returns in the current environment.