Kenya Fixed Income Market Update: 9th May 2025

Overview

During the week, the Kenyan fixed income market witnessed renewed investor interest, evidenced by a strong rebound in Treasury bill subscriptions and continued activity in the bond market. Macroeconomic indicators such as inflation, business sentiment (PMI), and balance of payments data also pointed to improving economic conditions, albeit with some structural challenges.

Treasury Bills: Robust Investor Demand Returns

The week saw a sharp recovery in T-bill subscriptions with an overall subscription rate of 219.5%, up from 76.6% the previous week. All three tenors recorded healthy bids:

• 91-day paper: Received Kshs 10.3 bn in bids (258.4% oversubscription)
• 182-day paper: 208.3% subscription
• 364-day paper: 215.0% subscription

The government accepted Kshs 50.7 bn out of Kshs 52.7 bn, representing a high acceptance rate of 96.3%.

Yields recorded a mixed trend:

• 91-day: ↓ 2.4 bps to 8.38%
• 182-day: ↓ 1.8 bps to 8.60%
• 364-day: ↑ 0.4 bps to 10.00%

Bonds: Continued Investor Interest in Medium-Term Paper

In the bond market, CBK reopened FXD1/2012/020 (7.6 years to maturity, 12.0% coupon):

• Oversubscription rate: 181.3% (Kshs 54.4 bn bids vs. Kshs 30.0 bn offered)
• Accepted: Kshs 43.5 bn (80.0% acceptance)
• Average yield: 13.6% (vs. 12.6% at the last reopening in Feb 2021)

The real return, factoring in April’s inflation (4.1%), stood at 9.5%, with a tax-effective yield of 15.2% for comparison against shorter-term bonds.

Liquidity: Slight Easing in Interbank Market

Liquidity in the interbank market slightly improved:

• Average interbank rate: ↓ 3.6 bps to 9.9%
• Volumes traded: ↓ 41.2% to Kshs 9.8 bn (from Kshs 16.7 bn)

Eurobonds: Decline in Yields Reflects Stable Outlook

Kenya’s Eurobond yields continued their downward trend:

• The 7-year Eurobond (2019) yield dropped by 37.3 bps to 8.1%

This reflects increasing investor confidence in Kenya’s external debt sustainability, buoyed by recent fiscal discipline and FX reserve growth.

Currency & Reserves: KES Strengthens, FX Reserves Improve

• KES/USD: Appreciated by 18.1 bps to Kshs 129.3
• Forex Reserves: ↑ 5.6% to USD 10.3 bn (4.6 months of import cover)

The KES strength, coupled with higher reserves, signals greater macro stability.

Key Economic Highlights

1. Stanbic PMI (April 2025)

• PMI improved to 52.0, the highest in 27 months, from 51.7 in March
• Strong performance in services and agriculture
• Output and new orders rose for the sixth straight month
• Business sentiment remained muted, with only 5% of firms optimistic about growth

2. FY2024 GDP Highlights (KNBS)

• FY2024 GDP growth: 4.7%, slower than 5.7% in FY2023
• Top contributors: Agriculture (4.6%), Real Estate (10.3%), Financial Services (7.6%)
• Fastest growing sector: Accommodation and Food Services at 25.7%
• Declining sectors: Construction, Mining, and Professional Services

3. Balance of Payments (FY2024)

• Surplus: Kshs 176.7 bn (vs. deficit of Kshs 134.8 bn in FY2023)
• Current Account Deficit: Narrowed by 45.4% to Kshs 208.9 bn
• Net errors & omissions: ↑ 722.9% to Kshs 107.8 bn
• Capital account: Surplus increased by 81.0%

Outlook

The improved liquidity, healthy investor participation in both bills and bonds, and firm macro fundamentals support a cautiously optimistic outlook for Kenya’s fixed income market. That said, the lower business sentiment, rising inflationary pressure, and high tax environment could dampen investor and consumer confidence. The accommodative policy stance of CBK (10.00% CBR) and relatively low inflation continue to anchor expectations.