Kenya’s fixed income market remained characterized by strong demand for government securities during the week ending 6th March 2026. Treasury bill auctions continued to attract significant investor interest, liquidity conditions remained accommodative, and macroeconomic indicators pointed to a gradually moderating pace of economic expansion. At the same time, policy developments—including proposed regulatory reforms in the asset management industry and fiscal adjustments through the supplementary budget—highlight evolving structural dynamics within Kenya’s financial markets.

Treasury Bills Market

Demand for Treasury bills strengthened further during the week, with the auction recording an overall subscription rate of 418.4%, marking the sixth consecutive week of oversubscription. This represented a notable increase from the 243.9% subscription recorded the previous week, reflecting continued investor appetite for government securities amid stable macroeconomic conditions and ample liquidity in the financial system.

Investor preferences, however, shifted across the maturity spectrum. Demand for the 91-day paper weakened considerably, with bids amounting to Kshs 1.9 bn against the Kshs 4.0 bn on offer, translating to a subscription rate of 48.7%, down sharply from 308.5% recorded the previous week. The decline suggests a repositioning by investors away from very short-term instruments.

Conversely, demand for longer tenors strengthened significantly. The 182-day paper recorded a subscription rate of 151.6%, a substantial recovery from 7.9% the previous week, while the 364-day paper remained the most sought-after instrument, with subscriptions rising to 833.2% from 454.0% previously. The strong demand for longer-dated bills indicates investors are seeking to lock in yields ahead of potential further declines in interest rates.

Despite the strong demand, the government remained selective in accepting bids, taking up Kshs 41.4 bn out of the Kshs 100.4 bn received, resulting in a relatively low acceptance rate of 41.2%.

Yield movements were mixed during the week. The yield on the 182-day paper edged upward slightly to 7.82%, compared to 7.80% previously, while the 364-day paper declined significantly to 8.6% from 8.8%, reflecting strong demand for longer tenors. The 91-day yield remained largely unchanged at 7.6%.

Overall, the continued oversubscription highlights sustained demand for government securities, driven by institutional investors, money market funds and banks seeking relatively secure returns in the current interest rate environment.

Money Market Liquidity

Liquidity conditions remained relatively stable during the week.

The average interbank rate declined slightly to 8.7% from 8.8% the previous week, suggesting a modest easing in money market conditions. The decline was partly attributable to government payments which helped offset the liquidity absorption effect of tax remittances.

Interbank trading volumes remained broadly stable, although they declined marginally by 2.2% to Kshs 8.8 bn, compared to Kshs 9.0 bn recorded the previous week.

Overall, liquidity conditions continue to support strong demand for government securities, particularly as the Central Bank maintains an accommodative policy stance following the February reduction in the Central Bank Rate.

Kenya Eurobond Market

In the international debt market, Kenya’s Eurobond yields moved upward during the week, reflecting adjustments in investor expectations following recent sovereign debt operations.

The yield on the 12-year Eurobond issued in 2019 increased sharply to 7.7% from 7.0%, representing the largest movement across the Eurobond curve during the week. The upward adjustment likely reflects repricing following the recent Eurobond issuance and liability management operations undertaken by the government.

Despite the short-term increase in yields, Kenya’s external debt position remains supported by improved reserve levels and continued access to international capital markets.

Exchange Rate and Foreign Reserves

The Kenyan Shilling weakened marginally during the week, depreciating to Kshs 129.2 per US dollar from Kshs 129.0 previously. The movement represents a modest adjustment rather than a fundamental shift in currency dynamics.

On a year-to-date basis, the shilling has appreciated by 10.1 basis points, although this remains lower than the 22.9 basis points appreciation recorded in 2025.

A notable development during the week was the sharp increase in Kenya’s foreign exchange reserves. Reserves rose 16.4% to USD 14.6 bn from USD 12.5 bn, equivalent to 6.2 months of import cover, comfortably above the statutory requirement of four months.

The increase reflects several factors, including proceeds associated with recent Eurobond transactions, continued strong diaspora remittance inflows, and active reserve accumulation by the Central Bank of Kenya.

The improved reserve position strengthens Kenya’s external buffer and provides additional support for exchange rate stability in the near term.

Private Sector Activity – February PMI

Economic activity in the private sector continued to expand in February, although at a slower pace.

According to the Stanbic Bank Purchasing Managers’ Index (PMI), Kenya’s PMI stood at 50.4 in February, remaining above the 50.0 expansion threshold for the sixth consecutive month, but down from 51.9 recorded in January.

The data suggests that while business conditions remain positive, the pace of expansion has moderated. Growth in February was supported by modest increases in output, new orders and employment levels. Demand remained relatively resilient in sectors such as construction, wholesale and retail trade, and services.

However, some sectors—including agriculture and manufacturing—showed signs of softening activity. Businesses also reported rising input and output prices, driven primarily by taxation pressures, higher operating costs and increased competition.

Overall, the PMI data indicates that Kenya’s economic recovery remains intact but is beginning to encounter emerging cost pressures.

Proposed Changes to CMA Licensing Fees

The Capital Markets Authority (CMA) has proposed significant changes to the regulatory framework governing licensed market intermediaries, particularly fund managers.

One of the most notable proposals is the introduction of an asset-based licensing fee model, under which fund managers would pay 0.05% of assets under management (AUM) annually, replacing the current flat-fee structure. The framework includes a minimum annual fee of Kshs 100,000 and a cap of Kshs 15 mn, intended to balance the regulatory burden across firms of different sizes.

The proposed changes also introduce higher capital requirements for certain license categories, alongside new license types for emerging segments such as robo-advisory platforms and intermediary service providers. In addition, investment banks may be permitted to operate as market makers, a move aimed at improving liquidity and price discovery in Kenya’s capital markets.

While the proposals align Kenya’s regulatory structure with international practices, the shift toward an AUM-based fee model could significantly increase regulatory costs for large fund managers. In turn, this may compress industry margins and potentially affect the fee structures of collective investment schemes.

Policymakers will therefore need to balance the goal of strengthening regulatory capacity with the broader objective of promoting growth in Kenya’s asset management industry, which plays an important role in mobilizing domestic savings and supporting capital market development.

Supplementary Budget FY2025/26

During the week, the National Treasury presented the FY2025/26 Supplementary Budget, proposing an increase in total government spending to Kshs 4.6 trillion, representing a 7.4% increase from the original budget estimates.

The revised budget reflects several shifts in fiscal priorities. Recurrent expenditure increased significantly, rising by 11.1% to Kshs 2.0 trillion, largely driven by higher allocations for salaries, operational costs and public service delivery.

In contrast, development expenditure declined, indicating a reduction in funding for long-term infrastructure investments. This shift may have implications for sectors that rely heavily on public development financing, including transport, energy and water infrastructure.

Sectoral adjustments within the supplementary estimates were also notable. Allocations for medical services and road infrastructure increased, while the State Department for MSME Development recorded the largest percentage increase in funding, reflecting the government’s emphasis on supporting small businesses and employment creation.

Meanwhile, the county equitable share remained unchanged at Kshs 415 bn, despite calls from county governments for higher allocations.

The fiscal adjustments highlight the government’s attempt to balance economic stimulus, public service delivery and fiscal consolidation within a challenging budget environment.

Outlook

Kenya’s fixed income market continues to benefit from strong demand for government securities, stable liquidity conditions and a relatively supportive macroeconomic environment.

However, several factors will shape market developments in the coming months, including the trajectory of interest rates, fiscal policy adjustments and regulatory reforms within the capital markets ecosystem.

While private sector activity remains in expansion territory, rising input costs and subdued consumer purchasing power may weigh on growth momentum. At the same time, regulatory developments and fiscal policy shifts will influence the broader financial market landscape.

Overall, the fixed income market is expected to remain well supported in the near term, although investors will continue to monitor macroeconomic indicators and policy developments closely.