Kenya Fixed Income Market Weekly Update – Week Ending 7th February 2025

The Kenyan fixed income market saw a significant shift this week, with T-bills recording a strong oversubscription, reversing last week’s muted demand. Additionally, the Central Bank of Kenya (CBK) announced the country’s first-ever domestic treasury bond buyback, while the Monetary Policy Committee (MPC) lowered key interest rates to support economic growth.

T-Bill Performance 📉📈

✅ T-Bills saw an overall subscription rate of 296.6%, a sharp reversal from last week’s 56.1%.

✅ Investor demand surged, with the 91-day T-bill oversubscribed by 250.0%, compared to last week’s undersubscription at 61.6%.

✅ 182-day and 364-day T-bills saw increased demand, with subscription rates of 240.0% and 371.9%, up from 28.6% and 81.3% the previous week.

✅ Total accepted bids: Ksh 59.7 billion out of Ksh 71.2 billion received (acceptance rate: 83.9%).

📉 T-Bill Yields Declined Significantly
The downward trend in T-bill yields continued:

• 91-day: 📉 Decreased by 40.6 bps to 9.1% (previous: 9.5%)
• 182-day: 📉 Declined by 50.9 bps to 9.5% (previous: 10.0%)
• 364-day: 📉 Dropped by 55.5 bps to 10.8% (previous: 11.3%)

Kenya’s First Domestic Treasury Bond Buyback 💰

For the first time, the CBK announced a buyback of three domestic treasury bonds, targeting Ksh 50.0 billion out of Ksh 185.1 billion in outstanding bonds:

🔹 Bonds targeted:

• FXD1/2020/005 (Maturity: 0.4 years, Coupon: 11.7%)
• FXD1/2022/003 (Maturity: 0.3 years, Coupon: 11.8%)
• IFB1/2016/009 (Maturity: 0.4 years, Coupon: 12.5%)

🔹 Total outstanding debt for these bonds:

• FXD1/2020/005 – Ksh 104.5 billion
• FXD1/2022/003 – Ksh 60.6 billion
• IFB1/2016/009 – Ksh 19.9 billion

📅 Buyback period: 7th – 17th February 2025
📅 Settlement date: 19th February 2025

💡 Market Outlook:

• We anticipate low participation, as investors may prefer holding these bonds to maturity rather than selling at a discount.
• Investor sentiment will depend on CBK’s offered price—a lower price may discourage participation.

Monetary Policy Committee (MPC) Decision 📉

The MPC met on February 5th, 2025, making key decisions in response to global economic recovery, easing inflation, and geopolitical factors:

✅ Central Bank Rate (CBR) cut by 50 bps to 10.75% (previous: 11.25%)
✅ Cash Reserve Ratio (CRR) lowered by 100 bps to 3.25% (previous: 4.25%)

💡 Implications:

• Lower borrowing costs, which could stimulate business expansion.
• Increased liquidity, supporting credit growth and investment.

Stanbic Bank PMI Report: Business Conditions Slow but Remain Positive 📊

The Stanbic Kenya PMI for January 2025 came in at 50.5, down slightly from 50.6 in December 2024.

📊 Key drivers:
✔️ Improved new orders and output growth
✔️ Easing inflationary pressures
❌ Employment losses in some sectors remain a challenge

💡 This marks the fourth consecutive month above the 50.0 neutral mark, signaling continued economic expansion—though at a slower pace.

Investment Outlook & Key Takeaways 💡📈

✅ T-Bill oversubscription reflects renewed investor confidence in short-term securities.
✅ Declining yields suggest lower borrowing costs and increased liquidity in the market.
✅ MPC’s rate cut supports credit expansion and economic growth.
✅ Bond buyback program is a new policy tool—its success depends on pricing.

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