Kenya Fixed Income Update – 5th September 2025

1. Treasury Bills Auction

The T-bills market remained strong, marking the third consecutive week of oversubscription. The overall subscription rate came in at 141.2%, an improvement from 133.5% the previous week.

• 91-day paper: Demand moderated, with bids worth Kshs 5.9 bn against Kshs 4.0 bn offered, translating to a subscription rate of 146.7%, lower than the unusually high 499.2% recorded previously.
• 182-day paper: Attracted modest interest, recording a subscription rate of 49.1%, up from 18.0% the prior week.
• 364-day paper: Remained the most preferred, surging to 231.0%, compared to 102.5% previously.

The government received bids totaling Kshs 33.9 bn and accepted Kshs 29.5 bn, reflecting a relatively low acceptance rate of 87.2%, underscoring cautious fiscal management.

T-bill Yields

• 91-day: 7.98% (↓ 1.3 bps)
• 182-day: 8.03% (↓ 1.7 bps)
• 364-day: 9.58% (↑ 1.0 bps)

The mixed yield performance reflects investors’ repositioning along the yield curve amid improving liquidity and inflation dynamics.

2. Treasury Bonds Market

The Central Bank of Kenya (CBK) reopened the SDB1/2011/030 bond (12.0% fixed coupon, 15.5 years to maturity). However, investor appetite remained muted:

• Subscription rate: 40.3% (Kshs 8.1 bn bids vs Kshs 20.0 bn offered)
• Acceptance rate: 29.7%, with CBK taking up Kshs 2.4 bn only
• Weighted average yield: 14.0% (flat compared to June reopening)

On a tax-equivalent basis, considering the 10% withholding tax (vs 15% on regular bonds), the effective yield stands at 14.8%. Adjusting for August’s 4.5% inflation, investors are locking in a real return of 9.5%, still attractive in real terms despite weak uptake.

3. Money Market Liquidity

Liquidity conditions eased slightly during the week:

• Interbank rate: 9.5% (↓ 2.4 bps from 9.6%)
• Average traded volumes: Declined sharply by 76.7% to Kshs 8.2 bn, from Kshs 35.2 bn

The subdued volumes suggest limited market activity, largely reflecting tax remittances offsetting government payments.

4. Eurobond Performance

Kenya’s Eurobonds remained resilient, with yields declining across the curve. The 10-year Eurobond (2018 issue) recorded the steepest fall of 33.6 bps, closing at 6.6%, compared to 7.0% the previous week.

The downward trend points to improved investor confidence in Kenya’s external debt sustainability, supported by stable reserves and a contained inflation environment.

5. Currency Market

The Kenya Shilling depreciated marginally by 0.2 bps, closing the week at Kshs 129.2/USD, unchanged from prior levels.

• Year-to-date (YTD): Appreciated by 5.1% against the dollar, contrasting with the 17.6% gain in 2024.
• Forex reserves: Marginally higher at USD 10.9 bn, equivalent to 4.8 months of import cover, comfortably above statutory and EAC convergence thresholds.

6. Macroeconomic Highlight – August PMI

Stanbic Bank’s Purchasing Managers’ Index (PMI) showed signs of stabilization:

• PMI: 49.4 in August, up from 46.8 in July, indicating a softer contraction.
• YoY comparison: Down from 50.6 in August 2024, still below the 50.0 threshold.

Key Insights:

• Output: Contracted for the 4th straight month, but at a slower pace.
• Sector performance: Agriculture, construction, and services remained weak; manufacturing and retail offered some resilience.
• Employment: Job creation continued for the 7th consecutive month, the fastest pace since May 2024.
• Purchasing activity: Declines slowed, with inventories improving as firms prepared for potential demand recovery.
• Prices: Input cost inflation softened after five months of acceleration, though wage growth hit the fastest pace since 2019. Output price inflation eased to a 12-month low as firms offered discounts.

Overall Outlook:

The PMI suggests early signs of stabilization, with easing political tensions and demand-side optimism supporting recovery expectations. However, persistent weakness in agriculture and services signals that the economy remains fragile, requiring sustained policy support.

The fixed income market remains attractive in the short end, with strong demand for the 91-day paper despite moderating subscription levels. The muted uptake in long-term infrastructure bonds highlights investor caution amid lingering fiscal risks. Meanwhile, improving Eurobond yields and stable FX reserves bolster Kenya’s external credibility. Looking ahead, softer inflation, supportive monetary policy, and signs of business recovery set the stage for cautious optimism in Q4 2025.

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