Investors trading Treasury bonds on the Nairobi Securities Exchange (NSE) have realized profits totaling Sh132.7 billion during the first six months of 2025. This marks a 30.7 percent increase from the Sh101.58 billion earned in the same period last year, driven by falling yields on new bond issuances and heightened demand for older, higher-yielding securities.

According to data from the Capital Markets Authority (CMA), investors sold bonds worth Sh1.7 trillion in the secondary market after initially purchasing them for Sh1.57 trillion. This compares to Sh1.39 trillion in sales from bonds with a face value of Sh1.29 trillion in the first half of 2024.

Institutional Investors Dominate Trading

  • Banks, fund managers, and insurance firms constitute the bulk of secondary market activity, leveraging bond trades for profit and liquidity management.
  • Churchill Ogutu, Capital A Investment Bank’s head of research, notes active trading by these institutions to optimize returns and manage cash flow.

High-Yield Infrastructure Bonds Lead Gains

  • Tax-exempt infrastructure bonds (IFBs) issued in 2023 and 2024, offering annual interest rates between 14.4% and 18.5%, have been the most lucrative.
  • Buyers pay premiums of up to 23% above face value to acquire these bonds, with one 8.5-year IFB issued in February 2024 trading at Sh122.60 per Sh100 unit.
  • Other notable IFBs include a 6.5-year bond from November 2023 at Sh113.84 per unit and a 17-year bond from March 2023 trading at Sh110.88.

Short-Term Bonds Also Attractive

  • Five-year ordinary bonds issued in 2021 and 2023 have seen strong demand due to relatively high coupons and shorter durations.
  • For example, a five-year bond from July 2023 is trading at Sh112.21 per unit with a 16.84% coupon.

Lower Yields on New Bonds

New government bonds currently offer interest rates ranging from 12% to 14.2% before withholding taxes of 10% to 15%, reflecting the Central Bank of Kenya’s (CBK) reduction of the base rate from 13% to 8.75% since August 2024 to stimulate private sector lending.

Growing Retail Participation and Market Accessibility

  • Retail investors and fund managers have increased their bond holdings, contributing to secondary market demand and liquidity.
  • The CBK’s 2023 launch of the Dhow CSD digital trading platform has simplified government securities transactions.
  • Households now hold Sh466.2 billion (6.3%) of Kenya’s Sh7.4 trillion domestic debt as of July 17, 2025, up from Sh409.3 billion at the end of June.

Debt Holdings by Investor Category

  • Commercial banks lead as government lenders with Sh2.62 trillion, followed by pension funds at Sh1.07 trillion and insurance companies at Sh1.04 trillion.
  • Foreign investors hold Sh310.8 billion, while non-financial companies and non-profits hold Sh111 billion and Sh74 billion respectively.
  • Government institutions and parastatals hold Sh518 billion in domestic debt.