Kenya Fixed Income Market Update | 30 January 2026

Executive Summary

Kenya’s fixed income market closed January 2026 on a stable but selectively risk-aware footing, characterized by moderating Treasury bill yields, strong demand for long-dated bonds, improving external credit sentiment, and inflation remaining firmly within the Central Bank’s target range. While investor appetite for short-term government paper softened on a monthly basis, the latest weekly auction reflected renewed demand, particularly for longer-dated Treasury bills and bonds.

The macro backdrop remains supportive, underpinned by contained inflation, easing liquidity conditions, a stable exchange rate, and positive sovereign credit rating actions, although fiscal vulnerabilities and elevated debt service costs continue to shape yield expectations at the long end of the curve.

Money Markets: Treasury Bills

Monthly Performance – January 2026

For the month of January 2026, Treasury bills remained oversubscribed, with the average overall subscription rate at 110.8%, albeit lower than 126.5% recorded in December 2025. This moderation reflects more selective investor participation following aggressive positioning at year-end.

• 182-day bills saw improved demand, with average subscription rates rising to 75.8%, from 37.7% in December
• 91-day and 364-day bills recorded weaker participation, with subscription rates declining to 81.3% and 157.6%, from 199.6% and 186.0%, respectively

Yields across all tenors continued their downward trend, reflecting easing inflation expectations and improved liquidity conditions:

• 364-day: down 7.9 bps to 9.2%
• 91-day: down 4.7 bps to 7.7%
• 182-day: marginally lower by 0.3 bps to 7.8%

During the month, the government accepted Kshs 98.8 bn out of Kshs 106.4 bn in bids, translating to an acceptance rate of 91.1%, slightly lower than 92.9% in December.

Weekly Performance

During the week under review, Treasury bills were oversubscribed for the first time in two weeks, with the overall subscription rate rising sharply to 196.7%, from 76.5% in the previous week.

• 91-day bills attracted strong demand, with bids of Kshs 6.4 bn against Kshs 4.0 bn offered, translating to a 158.8% subscription rate
• 182-day bills saw reduced demand, with subscription declining to 22.8%
• 364-day bills recorded a significant rebound, with subscription surging to 385.8%, from 81.5% the previous week

The government accepted Kshs 47.18 bn out of Kshs 47.21 bn received, translating to a near-full acceptance rate of 99.9%.

Yield movements were mixed:

• 91-day yield declined by 9.5 bps to 7.6%
• 182-day and 364-day yields edged higher by 0.7 bps and 0.6 bps, to 7.8% and 9.2%, respectively

Domestic Borrowing Position (FY’2025/26)

So far in FY’2025/26, the government has:

• Advertised Kshs 1,224.0 bn in government securities
• Accepted Kshs 1,530.4 bn, comprising:
  • Kshs 824.6 bn in Treasury bills
  • Kshs 705.8 bn in Treasury bonds

With total redemptions of Kshs 757.9 bn (entirely from T-bills), the government recorded a domestic borrowing surplus of Kshs 772.5 bn, underscoring front-loaded domestic financing amid fiscal pressures.

Treasury Bonds

Primary Bond Market

Bond auctions in January remained robust, with an average subscription rate of 125.8%, slightly lower than 132.8% in December 2025.

The re-opened bonds FXD1/2019/020 and FXD1/2022/025:

• Received Kshs 71.5 bn in bids against Kshs 60.0 bn offered
• Recorded an average subscription rate of 119.2%
• Saw Kshs 60.6 bn accepted (acceptance rate: 85.2%)

Weighted average yields settled at:

• 13.3% for FXD1/2019/020 (13.2-year tenor)
• 13.8% for FXD1/2022/025 (21.8-year tenor)

The persistence of elevated yields on long-dated bonds reflects investor demand for higher term premiums, driven by concerns around debt sustainability and long-term fiscal risks.

Secondary Bond Market

Secondary market activity strengthened during January, with turnover rising by 20.7% to Kshs 278.2 bn, from Kshs 230.4 bn in December. On a year-on-year basis, turnover increased by 76.9%, highlighting renewed participation by commercial banks and institutional investors.

The yield curve normalized into an upward-sloping structure, signaling:

• Greater confidence in short-term macro stability
• Continued caution over long-term fiscal and debt dynamics

Liquidity Conditions

Liquidity conditions eased both on a monthly and weekly basis.

• January average interbank rate declined by 10.3 bps to 9.0%
• Average interbank volumes increased by 11.4% to Kshs 11.8 bn

During the week:

• Interbank rate edged lower by 0.5 bps, remaining at 9.0%
• Volumes rose by 3.3% to Kshs 12.5 bn

This easing reflects continued government payments offsetting tax remittances, alongside accommodative monetary policy.

Kenya Eurobonds

Eurobond yields continued to trend lower, reflecting improving external sentiment.

• 7-year Eurobond (2024 issue) declined by 31.1 bps m/m to 6.8%
• On a weekly basis, the same bond fell by 14.0 bps

The decline reflects improved investor confidence following credit rating actions and enhanced external liquidity.

Currency and Forex Reserves

The Kenya Shilling remained broadly stable:

• Marginal 1.5 bps depreciation m/m to Kshs 129.0
• 0.8 bps weekly depreciation, unchanged at Kshs 129.0
• YTD appreciation of 1.5 bps, significantly lower than 22.9 bps in 2025

Foreign exchange reserves stood at USD 12.3 bn, equivalent to 5.3 months of import cover, comfortably above the statutory minimum.

Weekly Highlights

Inflation – January 2026

Year-on-year inflation eased to 4.4% in January from 4.5% in December, remaining within the Central Bank of Kenya’s 2.5%–7.5% target range for the 31st consecutive month.

• Food & Non-Alcoholic Beverages: +7.3% y/y
• Transport: +4.8% y/y
• Housing & Utilities: +2.2% y/y
• Month-on-month inflation: 0.6%

Lower fuel prices and exchange rate stability helped anchor inflation expectations, although electricity costs rose modestly. The recent CBR cut to 9.0% is expected to continue supporting credit uptake, with potential lagged inflationary effects.

Sovereign Credit Ratings Developments

Moody’s upgraded Kenya’s sovereign rating from Caa1 to B3 and revised the outlook to Stable, citing improved external liquidity, reduced refinancing risk, and enhanced access to international markets.

Fitch Ratings affirmed Kenya’s B- rating with a Stable outlook, acknowledging improved debt management and external buffers, while flagging elevated debt and fiscal pressures.

These actions align Kenya with peer emerging markets and support lower sovereign risk premiums, particularly at the short to medium end of the yield curve.

Outlook

Looking ahead, Kenya’s fixed income market is expected to remain stable with selective yield compression, supported by low inflation, accommodative monetary policy, and improved external sentiment. However, long-term yields are likely to remain elevated, reflecting persistent fiscal constraints, high debt-service ratios, and investor sensitivity to sovereign risk.

Overall, the balance of risks remains constructive in the near term, but structurally cautious at the long end of the curve.