Kenya's Treasury bond auction held on July 22 saw robust demand, with investors bidding Sh85.9 billion against an advertised Sh40 billion, resulting in a subscription rate of 214.8 percent. The Central Bank of Kenya (CBK) successfully raised Sh63.28 billion from this dual-tranche sale.

The auction featured reopened 20-year and 25-year bonds maturing in 2039 and 2047, respectively. The longer-dated 25-year bond was the clear favorite, attracting bids worth Sh61.9 billion, over 72 percent of total subscriptions. This bond carries a 14.2 percent coupon rate, the highest among government securities currently available, and was accepted at a yield of 14.4 percent.

In contrast, the 20-year bond, with a lower 12.9 percent coupon, saw weaker demand and was accepted at a 13.9 percent yield. The auction results align with a growing investor preference for higher-coupon securities that offer better regular income.

The strong bond demand complements activity in the Treasury bill market, where the July 23 auction received bids totaling Sh38.5 billion against a Sh28 billion target, a 137.5 percent subscription. Yields on short-term bills eased slightly, indicating improved liquidity and confidence in Kenya's macroeconomic stability.

Government’s Funding and Fiscal Strategy

So far this financial year, the National Treasury has raised Sh133.88 billion, about 15 percent of its Sh890.4 billion net domestic borrowing target. This progress comes despite plans to reduce domestic borrowing by Sh132 billion compared to the previous year, aiming to ease pressure on local credit markets and support private sector lending.

The government is shifting focus from expensive commercial external debt towards concessional financing, public-private partnerships, and the National Infrastructure Fund. The fund is designed to attract long-term capital from pension funds, insurance companies, sovereign investors, and development finance institutions to back infrastructure projects in sectors like roads, energy, water, housing, and logistics.

This approach seeks to lower borrowing costs, reduce reliance on debt-funded infrastructure, and free fiscal space for essential public services.

Capital Markets Update

Kenya’s capital markets also showed positive momentum during the week ending July 23. The Nairobi Securities Exchange (NSE) indices, including NASI, NSE 20, and NSE 25, recorded gains. Equity turnover surged by 50.8 percent while bond turnover in the secondary market increased by 37.7 percent, reflecting heightened trading activity.