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Fixed Income Market Update – Week Ending 4th April 2025
The Kenyan fixed income market showed renewed investor appetite during the week, as Treasury bill and bond auctions attracted high levels of subscription. Here’s a breakdown of the key developments:
Treasury Bills Auction: Strong Rebound in Demand
- T-bills were oversubscribed for the first time in two weeks, with an overall subscription rate of 169.5%, reversing the undersubscription of 61.4% recorded the previous week.
- Investor focus remained on the 91-day paper, which received Kshs 11.2 billion in bids versus an offer of Kshs 4.0 billion, translating to a 279.5% oversubscription, up from 69.8% undersubscription previously.
- The 182-day paper saw improved demand with a 44.9% subscription rate (vs. 17.1% last week), while the 364-day paper saw robust appetite with 250.1% subscription, up from 102.5%.
T-bill Yield Movements (Week-on-Week):
| Instrument | Previous Yield | Current Yield | Change |
|---|---|---|---|
| 91-day | 8.8% | 8.6% | ▼ 16.1 bps |
| 182-day | 9.1% | 9.0% | ▼ 2.3 bps |
| 364-day | 10.4% | 10.4% | ▼ 2.5 bps |
➡️ Yields continued their downward trend, especially for the 91-day bill, which saw the sharpest drop.
Treasury Bonds Auction: Solid Demand, Lower Yields
The CBK reopened three medium-to-long-term bonds:
- FXD1/2020/015 (9.9 years to maturity, 12.8% coupon)
- FXD1/2022/015 (12.1 years, 13.9% coupon)
- FXD1/2022/025 (22.6 years, 14.2% coupon)
Auction Highlights:
- Total bids received: Kshs 71.7 billion
- Amount accepted: Kshs 71.4 billion (Acceptance rate: 99.5%)
- Subscription rate: 102.5%
Weighted Average Yields on Accepted Bids:
| Bond | Accepted Yield | Previous Auction Yield | Movement |
|---|---|---|---|
| FXD1/2020/015 | 13.7% | ~13.7% (Mar 2022) | ➡ Unchanged |
| FXD1/2022/015 | 13.8% | 14.2% (Jan 2023) | ▼ 40 bps |
| FXD1/2022/025 | 14.2% | 15.7% (Jan 2025) | ▼ 150 bps |
Inflation-adjusted real returns (Inflation: 3.6%, Mar 2025):
- FXD1/2020/015 → 10.1%
- FXD1/2022/015 → 10.2%
- FXD1/2022/025 → 10.6%
💡 Insight: Despite lower nominal yields, the real returns remain highly attractive, particularly for long-term investors. When adjusted for withholding tax (10% for these bonds), a short-term bond subject to 15% tax would need to yield 14.5%–15.0% to match these returns.
Economic Indicator: PMI Update (March 2025)
Stanbic Bank Kenya’s PMI rose to 51.7 in March, up from 50.6 in February, marking the 6th consecutive month above the 50.0 neutral level.
This signals ongoing improvement in business conditions, supported by:
- Increased private sector output
- Growth in new orders
- Stronger sales momentum
This economic backdrop supports investor confidence and could influence market direction for bonds and credit instruments.
Key Takeaways
- Investor demand surged in both the T-bills and T-bond markets, reversing the subdued activity of the previous week.
- Yield compression continues, reflecting investor willingness to accept lower returns in favor of perceived safety.
- Long-term bonds are offering strong real returns, even as nominal yields soften.
- The PMI rebound suggests optimism in private sector activity and a steady recovery environment.
📎 Disclaimer
This content is for informational purposes only and should not be construed as financial advice. Please consult a licensed investment professional before making investment decisions.