Kenya Fixed Income Market Weekly Update – 23rd February 2025

Kenya’s fixed income market remained active this week, with T-bills experiencing continued oversubscription, a successful bond buyback, and a new long-term bond issuance in the primary market.

T-Bill Auction Results

T-Bills were oversubscribed for the third consecutive week, with the overall subscription rate at 137.3%, though lower than the 184.4% recorded the previous week.

🔹 91-Day T-Bill: Investors’ demand recovered, with an oversubscription of 113.1% (Kshs 4.5B received vs. Kshs 4.0B on offer).
🔹 182-Day T-Bill: Demand slowed to 123.6% from 236.2% in the previous week.
🔹 364-Day T-Bill: Subscription rate dropped to 160.6%, down from 181.1% last week.
🔹 Total accepted bids: Kshs 32.90B out of Kshs 32.94B (acceptance rate: 99.9%).

T-Bill Yields

The yields on government papers continued to decline, signaling easing rates:

✅ 91-Day T-Bill: 8.9% (⬇ 2.2 bps)
✅ 182-Day T-Bill: 9.3% (⬇ 9.8 bps)
✅ 364-Day T-Bill: 10.5% (⬇ 6.8 bps)

Government Bond Buyback – Auction Results

The Central Bank of Kenya (CBK) conducted Kenya’s first-ever domestic bond buyback, targeting the following bonds:

🔸 FXD1/2022/003 (11.8% coupon, 0.4 years to maturity)
🔸 FXD1/2020/005 (11.7% coupon, 0.3 years to maturity)
🔸 IFB1/2016/009 (12.5% coupon, 0.4 years to maturity)

The buyback was oversubscribed at 112.2%, attracting Kshs 56.1B against the Kshs 50.0B offer. Accepted bids amounted to Kshs 50.1B (89.3% acceptance rate), equivalent to 27.1% of the outstanding Kshs 185.1B for the three bonds.

📉 Buyback Yields (Weighted Average):
▪️ FXD1/2022/003 – 9.1%
▪️ FXD1/2020/005 – 8.9%
▪️ IFB1/2016/009 – 9.1%

💡 Key Insight: The yields from the buyback closely match current T-bill rates, making the refinancing costs aligned with market conditions.

New Bond Issuance – FXD1/2018/25

The government seeks to raise Kshs 25.0B through the reopened bond FXD1/2018/25, with:

🔸 Tenor to maturity: 18.3 years
🔸 Fixed coupon rate: 13.4%
🔸 Current secondary market rate: 13.34%

📆 Sale Period: 21st February – 5th March 2025

💡 Expected Yield Range: 13.85% – 14.55%

Kenya’s Fiscal Performance – January 2025 Update

The National Treasury gazetted revenue and expenditure for the seven months ending January 2025, highlighting:

📌 Revenue collected: Kshs 1,352.8B, 51.4% of the revised target (Kshs 2,631.4B).
📌 Total expenditure: Kshs 1,994.8B, 47.4% of the revised annual estimate (Kshs 4,207.9B).
📌 Challenges: Revenue collections lagging due to high living costs & increased taxation.

📢 What This Means for Investors

🔹 Declining T-bill yields signal a potential lower rate environment in the coming weeks.
🔹 Government’s bond buyback success shows investor confidence but at rates aligned with T-bills.
🔹 New bond issuance at 13.4% coupon (expected 13.85%-14.55%) offers a long-term investment opportunity.

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