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Investors mint Sh134 billion from bond sales in nine months
The rise of bond prices in the secondary marketplace puts government paper sales on course to be among the highest returning asset class of 2025 behind local equities which have averaged a higher return of over 45 percent through October 28.
Sellers of government bonds at the Nairobi bourse minted Sh134 billion in profits in nine months to the end of September as the price of the securities rose on falling interest rates.
The price of bonds at the Nairobi Securities Exchange (NSE) has soared this year as interest rates in the primary securities market fall, increasing the demand for previously issued government papers that offer relatively higher returns to investors.
The appeal for the previously issued government papers has stimulated activity in the secondary bonds market whose turnover crossed Sh2 trillion in the nine months to September, surpassing total trades in the entirety of 2024 at Sh1.54 trillion.
Bond prices and yields usually have an inverse relationship where prices rise as interest rates fall resulting in a windfall for investors holding bonds with high coupons/returns.
A bond traded on the NSE usually attracts a premium or discount on its par value (Sh100 per unit) depending on the demand from buyers, and whether it carries a higher or lower interest rate compared to what is being paid on new issuances of a similar tenor.
The infrastructure bond issued in February 2024 at an interest rate or coupon of 18.46 percent remains the most attractive paper for investors in the secondary bond market based on its lucrative return.
The paper has commanded a premium as interest rates in the primary market fell and fetched a price of Sh123.28 to the par value of Sh100 as of Monday this week, representing a profit of 23.2 percent to investors.
Bond sellers minted profits of Sh33.1 billion between July and September this year, following gains of Sh57.6 billion between January and March and Sh43.7 billion in the second quarter.
“The secondary bonds market activities grew during the quarter under review (quarter three). The turnover value of traded bonds closed at Sh684.01 billion from the Sh666.46 billion recorded in the previous quarter, representing an increase of 2.65 percent,” the Capital Markets Authority (CMA) said in a statistics bulletin.
The Central Bank of Kenya (CBK) has cut its benchmark interest rate for eight consecutive times since August 2024, inducing the broad decline in domestic interest rates including returns from temporary and term commercial bank deposits and government paper.
The return on the 91-day Treasury bill averaged eight percent in August compared to a higher 15.78 percent at the same time last year.
Interest rates on government paper are expected to continue falling into the end of 2025 on the lower CBK benchmark rate, maintaining the attractiveness of previously issued bonds at the Nairobi Securities Exchange (NSE).
“Going forward, we expect yields to continue trending downwards in the near term,” noted analysts at the AIB-AXYS Africa stock brokerage.
The rise of bond prices in the secondary marketplace puts government paper sales on course to be among the highest returning asset class of 2025 behind local equities which have averaged a higher return of over 45 percent through October 28.
The return beats the yield generated from asset classes such as real estate which remain in single digit levels.
The Hass Property index places the annual change in price for all properties at 8.2 percent through September 2025 with apartments offering the lowest growth in price at 1.5 percent in the same period.
A change in direction of interest rates would reverse the premium prices on bonds in the secondary market as investors pivot from the bourse to seek higher returns in the CBK primary market.
This would result in losses for holders selling their government papers as the price of the instrument is discounted below the Sh100 par value.
