Kenya Fixed Income Market Update – 5th October 2025

Treasury Bills Auction Performance

During the week, Treasury bills were undersubscribed for the third consecutive week, reflecting sustained caution among investors amid shifting liquidity dynamics. The overall subscription rate stood at 63.1%, marginally above the 62.9% recorded the previous week.

Investor appetite for the 91-day paper remained muted, receiving bids worth Kshs 1.6 billion against an offer of Kshs 4.0 billion, translating to a 40.4% subscription rate, slightly below the prior week’s 40.5%. The 182-day paper witnessed renewed investor interest, with subscription improving to 61.3% from 19.4%, while the 364-day paper fell to 73.8% from 115.3%.

The government accepted Kshs 15.1 billion out of Kshs 15.1 billion in bids, representing an acceptance rate of 99.9%.
Yields displayed a mixed performance across maturities:

• 91-day: increased by 1.0 bps to 7.92%
• 182-day: decreased marginally by 0.02 bps to 7.98%
• 364-day: rose by 0.8 bps to 9.54%

The moderation in yield movements suggests an overall stable short-term interest rate environment, supported by improved fiscal operations and active liquidity management by the Central Bank.

Primary Bond Market Update

In the primary bond market, the government reopened FXD1/2018/015 and FXD1/2021/020 seeking to raise Kshs 50.0 billion. These issues carry coupon rates of 12.7% and 13.4%, and tenors to maturity of 7.7 years and 15.9 years, respectively.

The bond sale period opened on 26th September 2025 and will close on 15th October 2025. Our recommended bidding ranges are:

• FXD1/2018/015: 12.75% – 13.50%
• FXD1/2021/020: 13.50% – 14.50%

Given the current inflation rate of 4.5% (August 2025), both bonds present real returns above 8.0%, maintaining their attractiveness relative to short-term instruments.

Liquidity and Interbank Market

Liquidity in the money market tightened slightly during the week, with the average interbank rate rising by 3.9 bps to 9.53%, driven by tax remittances that outweighed government payments. Interbank trading volumes declined by 12.6% to Kshs 15.1 billion, down from Kshs 17.2 billion the previous week.
The tighter liquidity conditions underscore a temporary cash squeeze among commercial banks ahead of the mid-month tax cycle.

Eurobond Market

In the international market, Kenya’s Eurobonds yields declined, reflecting renewed investor confidence following the government’s successful buyback and refinancing operations. The 10-year Eurobond (2018 issue) registered the largest decline, easing by 23.4 bps to 5.8%, down from 6.1% the prior week.

Macroeconomic Highlights

1. Kenya Q2’2025 GDP Growth

According to the Kenya National Bureau of Statistics (KNBS), the economy expanded by 5.0% in Q2’2025, up from 4.6% in Q2’2024. Growth was broad-based, led by Agriculture, Forestry & Fishing (4.4%), which continues to anchor Kenya’s GDP despite moderating slightly from 4.5% a year earlier.
Key growth sectors included:

• Mining & Quarrying: up by 20.8% points to 15.3%
• Construction: up by 9.4% points to 5.7%
• Electricity & Water Supply: up by 4.5% points to 5.7%

However, the Accommodation & Food Services, Financial Services, and Public Administration sectors saw notable slowdowns, signaling emerging weaknesses in consumption and fiscal-driven sectors.

2. Balance of Payments (BoP) Q2’2025

Kenya’s BoP deficit widened sharply by 86.6% to Kshs 157.0 billion, from Kshs 84.1 billion in Q2’2024.
The deterioration was primarily driven by a 282.8% increase in the financial account deficit, while a 118.9% improvement in the capital account balance partially offset the decline.

The current account deficit widened by 76.6% to Kshs 83.7 billion, mainly due to:

• An 11.7% expansion in the merchandise trade deficit to Kshs 348.4 billion, and
• A 7.5% decline in the services trade surplus to Kshs 65.5 billion.

This trend highlights persistent external sector vulnerabilities, though improved foreign direct investment inflows may provide medium-term stability.

3. Kenya’s Eurobond Buyback and New Issuance

During the week, the government invited holders of its USD 1.0 billion 2028 Eurobond to tender their notes at USD 1,037.50 per USD 1,000 face value.
Subsequently, Kenya successfully raised USD 1.5 billion through two new tranches:

• 7-year note at 7.9%, and
• 12-year note at 8.8%,
  giving a blended rate of 8.7%, nearly 1.0% lower than what the country would have paid earlier in the year.

The issuance attracted USD 7.5 billion in bids, representing 500% oversubscription, driven largely by U.S. and U.K. fund managers.
This transaction not only reduces refinancing risk but also enhances debt sustainability, signaling renewed global confidence in Kenya’s fiscal management.

Following the announcement, yields on the 2018 10-year Eurobond fell sharply by 79.5 bps to 5.8%, marking a significant improvement in investor sentiment.

Outlook

The fixed income market is expected to remain broadly stable in the near term, supported by moderated inflation, a firm shilling, and improving investor confidence in Kenya’s external debt management. However, short-term liquidity pressures and subdued demand for short-dated bills could maintain mild upward pressure on short-term yields.
Overall, the government’s proactive debt management strategy and sustained macroeconomic recovery create a constructive backdrop for fixed income investors.