The Central Bank of Kenya (CBK) has announced the re-opening of two fixed-income securities — FXD1/2018/020 (12.5 years to maturity) and FXD1/2022/025 (22.2 years to maturity) — with the objective of raising KES 40.00 billion for FY2025/26 budgetary support. The auction runs from 26th August to 17th September 2025, with settlement slated for Monday, 22nd September 2025.
Auction Context
Government maturity obligations for September stand at KES 166.20 billion, a decline from KES 260.50 billion in August. This easing of short-term repayment pressures gives the exchequer greater fiscal flexibility, potentially allowing it to reject overly aggressive investor bids. Notably, a large portion of September’s maturities is tied to the IFB1/2013/012 bond, with an outstanding balance of KES 16.06 billion expected to be partially refinanced through this auction.
That said, the government enters the auction cycle having already frontloaded significant debt through August auctions and tap sales, placing it ahead of prorated borrowing targets. This dynamic may cap upward pressure on yields, although investor appetite for higher returns — demonstrated by the SDB1/2011/030 auction, where bids came in 168 basis points above the yield curve — suggests a competitive bidding environment ahead.
Fiscal Backdrop
Kenya’s fiscal position remains challenging despite a strong revenue performance in July 2025:
- Total revenue receipts rose 30.9% year-on-year to KES 245.64 billion, supported by improved tax collections and a surge in domestic borrowing.
- Tax revenues increased 7.5% year-on-year to KES 171.53 billion.
- Domestic borrowing soared 545.7% year-on-year to KES 67.26 billion, reflecting the government’s frontloading strategy ahead of August’s heavy maturities.
Despite these gains, revenues met only 66.5% of prorated targets, falling below the five-year average of 71.8%. This underperformance underscores the government’s continued dependence on domestic debt markets to bridge fiscal gaps.
Liquidity and Yield Dynamics
- Interbank Market: Trading volumes rose 31.1% month-on-month in August, with average interbank rates easing slightly to 9.54%. Elevated bond issuances continue to absorb market liquidity, creating tighter conditions and increasing the likelihood of more aggressive investor bids.
- Yield Curve: Yields declined across the curve in August following the CBK’s policy rate cut to 9.50%. However, declining real rates — now at 5.0%, down from a peak of 9.3% in October 2024 — may dampen bond demand, forcing the government to accept higher yield bids to attract investors.
Auction Highlights
- Issuer: Republic of Kenya
- Target Amount: KES 40.00 billion
- Bonds on Offer:
- FXD1/2018/020 — Coupon: 13.2000%, Redemption: 1st March 2038, Withholding Tax: 10%
- FXD1/2022/025 — Coupon: 14.1880%, Redemption: 23rd September 2047, Withholding Tax: 10%
- Non-Competitive Bids: KES 50,000 (min) – KES 50 million (max) per CSD account
- Competitive Bids: KES 2 million minimum per CSD account, per tenor
Rock Advisors’ Bidding Guidance
Based on prevailing liquidity levels, fiscal pressures, and yield curve dynamics, we recommend:
- FXD1/2018/020: 13.75% – 13.95%
- FXD1/2022/025: 14.25% – 14.45%
At Rock Advisors, we continue to monitor Kenya’s debt market closely, offering investors timely insights into government issuances, fiscal positioning, and yield opportunities.
