What You Need to Know
Institutional investors in Kenya are increasingly favoring newly issued treasury bonds over older ones due to better yields and improved liquidity. Recent auction results indicate a significant demand for new bonds, with bids far exceeding the amounts offered, highlighting a shift in market dynamics. This trend reflects a growing preference for fresh issuances among large-scale investors.
Africa-Press – Kenya. Institutional investors are shifting their attention to newly issued government securities, even as long-term state papers continue to offer solid returns.
Latest auction results from the Central Bank of Kenya shows that while reopened long-term bonds still attract interest, newer papers with slightly higher yields and fresh liquidity are drawing stronger demand from pension funds, insurance firms and other large investors.
In what is coming as a change to Kenya’s debt market dynamics, older bonds are not attracting as much interest from investors.
In the most recent auction, the government offered two 30-year bonds, a reopened issue with about 14.9 years remaining to maturity and a new 30-year infrastructure-style bond.
The newer bond stood out, receiving bids worth Sh31.3 billion, far exceeding the Sh20 billion on offer.
“This translated to a performance rate of 156.4 percent, indicating strong investor appetite,” said CBK director of financial markets Robert Aloo.
By contrast, the reopened bond attracted bids worth Sh7.05 billion against a similar offer, reflecting a more modest uptake with a performance rate of 35.3 per cent.
The difference in demand highlights a growing preference among institutional investors for fresh issuances.
The improvement in uptake of newer bonds might be largely driven by slightly better returns and improved liquidity conditions associated with new bonds.
“The newer 30-year bond offered a market-weighted average yield of about 13.87 percent, compared to 13.11 percent for the reopened bond,” CBK said in it latest release.
While the gap may appear small, it is significant for large-scale investors managing billions of shillings, where even marginal yield differences can translate into substantial returns over time.
Liquidity, the ease with which an asset can be bought or sold without affecting its price, is becoming a key consideration for pension funds and insurers.
These institutions require flexibility to rebalance portfolios or meet obligations such as pension payouts and insurance claims.
According to the banking regulator the market has been liquid.
“The money market remained liquid during the week ending April 9, 2026, with open market operations remaining active. Commercial banks’ excess reserves averaged Sh6.9 billion above the 3.25 per cent Cash Reserve Ratio (CRR) requirement,” CBK noted in the weekly bulletin.
Fresh issuances typically come with a wider distribution of investors, making them easier to trade in the secondary market compared to older, reopened bonds that may already be concentrated in a few portfolios.
Despite this shift, long-term government securities remain attractive, particularly for investors seeking stable, predictable income streams.
Both bonds offered relatively strong coupon rates of 12 percent and 12.5 percent respectively, reinforcing their appeal in a high-interest rate environment.
The auction results come at a time when the government is balancing between refinancing maturing debt and raising new funds to support the budget.
Part of the proceeds from the reopened bond is earmarked for redemptions, while the new bond contributes to fresh borrowing.
The new bond recorded a ratio of 1.33, compared to 1.07 for the reopened issue, further underlining stronger investor interest.
Kenya has already announced plans to source more than 80 per cent of gross borrowing locally in the next five years, a move the National Treasury says offers a sustainable balance between cost and risk exposure.
This as per the latest Annual Public Debt Management Report 2024/5, released on Wednesday, outlining a plan to source 82 per cent of gross borrowing from domestic sources, up from the current target of 75 per cent.
In the new plan, external financing will account for only 18 per cent.
This is expected to be achieved gradually, starting in the next financial year, where the net borrowing mix is projected at 78 per cent domestic and 22 per cent external.
Kenya’s debt market has evolved significantly over the years, with government securities playing a crucial role in financing national projects and managing fiscal policies. The Central Bank of Kenya regularly conducts bond auctions to raise funds, and recent trends indicate a shift in investor preferences towards new issuances, which offer better yields and liquidity compared to older bonds. This change is reshaping the landscape of Kenya’s financial markets, as institutional investors seek to optimize their portfolios amidst fluctuating economic conditions.
