Kenya Fixed Income Market Update – February 2025

📌 Overview
The fixed income market in Kenya witnessed notable activity in February 2025, marked by strong T-bill oversubscription, bond market movements, the first-ever domestic bond buyback, and key economic indicators such as inflation and monetary policy changes.

📈 T-Bill Performance

T-bills recorded high demand, with an overall subscription rate of 168.6%, significantly higher than 104.7% in January 2025.

🔹 Average Subscription Rates:

• 91-day T-bill: 122.0% (⬇️ from 259.3% in Jan)
• 182-day T-bill: 157.1% (⬆️ from 62.6% in Jan)
• 364-day T-bill: 198.7% (⬆️ from 84.9% in Jan)

🔹 T-Bill Yields:

• 91-day: 9.1% (⬇️ 48.8 bps from 9.6%)
• 182-day: 9.6% (⬇️ 46.0 bps from 10.0%)
• 364-day: 10.8% (⬇️ 52.8 bps from 11.3%)

The government accepted Kshs 130.9B out of Kshs 161.8B bids received, translating to an acceptance rate of 80.9%, compared to 90.6% in January.

📉 T-Bill Auction Performance (Week Ending 28th Feb 2025)

T-bills continued their strong demand streak, with an overall subscription rate of 152.3% (⬆️ from 137.3% last week).

🔸 91-day T-bill: 448.9% (⬆️ from 113.1%)
🔸 182-day T-bill: 69.0% (⬇️ from 123.6%)
🔸 364-day T-bill: 117.0% (⬇️ from 160.6%)

Government Accepted: Kshs 36.51B out of Kshs 36.55B received.

📊 Bond Market Performance – February 2025

The February bond auction saw a 277.0% oversubscription, significantly higher than 196.7% in January.

Reopened Bonds:
🔹 IFB1/2022/014 (11.8 years maturity, 13.9% coupon)
🔹 IFB1/2023/017 (15.1 years maturity, 14.4% coupon)
✅ Total Bids Received: Kshs 193.9B (⬆️ from Kshs 70.0B offered)
✅ Total Accepted: Kshs 130.8B (67.5% acceptance rate)
✅ Accepted Yields: 14.0% (IFB1/2022/014) and 14.3% (IFB1/2023/017)
✅ Effective Tax-Free Yields: 15.5% and 15.9%, respectively.

🔄 First-Ever Domestic Treasury Bond Buyback

The government executed its first-ever domestic bond buyback, targeting Kshs 50.0B of outstanding bonds.

Target Bonds:
✔️ FXD1/2020/005 (11.7% coupon)
✔️ FXD1/2022/003 (11.8% coupon)
✔️ IFB1/2016/009 (12.5% coupon)

Results:

• Total Bids Received: Kshs 56.1B (112.2% oversubscribed)
• Accepted Bids: Kshs 50.1B (89.3% acceptance rate)
• Weighted Average Yields: 9.1% – 8.9%, aligning with current T-Bill rates.

📌 New Bond Issue: FXD1/2018/25

The government aims to raise Kshs 25.0B through the reopened FXD1/2018/25 bond (18.3 years maturity, 13.4% coupon).

📅 Sale Period: 21st February – 5th March 2025
📊 Bidding Range: 13.85% – 14.55%
📉 Current Market Yield: 13.34%

📈 Inflation Update – February 2025

Kenya’s year-on-year inflation rate rose to 3.5%, up from 3.3% in January.

🔸 Key Inflation Drivers:
✔️ Food & Non-Alcoholic Beverages: +6.4%
✔️ Transport: +0.7%
✔️ Housing, Water, Electricity & Gas: -0.8%

📉 Why Inflation Increased?

• CBR cut to 10.75% in February
• Kenya Shilling depreciation
• Lower electricity prices

🌍 Kenya’s International Debt Moves – Eurobond Buyback

Kenya announced a USD 900M Eurobond buyback for its 7-year bond maturing in May 2027, to be financed through a new Eurobond issuance.

📌 Context:

• This follows Kenya’s successful USD 2.0B Eurobond buyback in Feb 2024 before the June 2024 maturity.
• Also aligns with Kshs 50.0B bond buyback in the domestic market.

💡 Investment Takeaways

📉 Falling yields = Cheaper borrowing but lower returns on short-term securities.
📈 Eurobond Buybacks = Government improving debt management but increasing future obligations.
⚖️ Government Bond Demand = Strong interest despite declining yields, likely due to tax-free nature.

✅ What’s Next?

• Watch for bond buyback outcomes.
• Monitor T-bill rates as yields decline.
• Upcoming FXD1/2018/25 bond auction.

📢 Stay updated with NuPath Advisory for more market insights!

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