The Central Bank of Kenya (CBK) has opened the sale of a Sh60 billion Treasury bond, continuing its recent trend of issuing longer dated papers to lengthen the government’s domestic debt maturity profile.
In the issuance which runs until January 7, 2026, the CBK has reopened a 25-year bond that was initially brought to the market in September 2022, and a 20-year bond first sold in March 2019.
The 25-year paper, which was most recently reopened last month, has 21.8 years to maturity and a coupon or fixed interest rate of 14.18 percent, while the 20-year bond has a period to maturity of 13.2 years and a coupon of 12.87 percent.
The market has seen high liquidity in recent months, resulting in an oversubscription in the November and December auctions, and in the weekly Treasury bill auctions as well.
In the December bond whose auction was held last week, investors offered a total of Sh53.13 billion against a target of Sh40 billion, with the CBK taking up Sh47.1 billion.
The CBK had reopened a pair of 25-year and 30-year bonds that were first issued in May 2021 and February 2011 respectively in the sale.
“We note resilient liquidity conditions in the market, signaled by the steadily strong performance rate, which has remained above 230 percent since the August primary auction,” said analysts at AIB AXYS Africa in a note on the December bond sale.
In November, the CBK carried out two separate issuances in which it reopened a pair of 15-year bonds, a 20-year bond and a 25-year bond (the same one on sale for January 2026), which raised a combined Sh107.6 billion from bids of Sh208.75 billion. Each of the two issuances targeted Sh40 billion.
In addition to a liquid market, the CBK is also leaning on the demand for higher coupon bonds in a period of falling interest rates.
The long-term bonds that the government has been reopening in recent months carry coupons of between 12 percent and 14.2 percent, which is significantly higher compared to short-term rates of between 7.7 percent and 9.4 percent on Treasury bills.
The maturity profile of these bonds would normally appeal to buyers with a longer investment horizon such as pension funds, but retail investors have also bought in as returns from other assets such as Treasury bills, unit trusts and fixed bank deposits continue to trend lower.
The general decline in interest rates has tracked the easing actions of the CBK’s monetary policy committee, which has cut rates in its last nine meetings held since August 2024.
The Central Bank Rate (CBR) currently stands at nine percent, having been cut by 0.25 percentage points in the latest meeting on Tuesday. The CBR stood at 13 percent before the current easing cycle started in August 2024.
For investors, the lower base rate has the effect of cutting returns from fixed income investments whose pricing is linked to short term government securities.
These investors are therefore likely to shift capital to higher returning assets such as long term bonds in order to protect the value of their portfolios.
