Kenyan Eurobond yields have decreased in recent weeks, contrasting with rising interest rates on bonds in advanced economies. This development signals an opportunity for Kenya to raise cash cheaply in internal capital markets through instruments like Eurobonds. Yields on all but one Eurobond have fallen since the US Federal Reserve raised its benchmark rate earlier this month, maintaining debt affordability for Kenya. The country seeks to return to the markets later this year with a Sh105.8 billion ($815 million) new Eurobond.
The 11-year Eurobond maturing in 2036 has registered the largest yield contraction at 0.165 percentage points, falling to 9.087 percent on September 24 from 9.252 percent on September 15. The 12-year Eurobond maturing in 2038 also fell by 0.1 percentage points, while other Eurobonds registered declines of between 0.041 and 0.09 percentage points. The 12-year 2032 Eurobond was the only one to buck the trend, as its yield rose by 0.024 percent in the period.
The ease in Eurobond yields has been attributed to sustained appetites for risk by global investors alongside improved fundamentals for emerging and frontier economies like Kenya. According to analysts at global credit rating agency Moody’s, compression of credit spreads has been broad-based but sharpest among low-rated sovereigns, aided by earlier Federal Reserve easing. This has resulted in improved economic fundamentals for Kenya despite emerging shocks.
Kenya has seen improved economic fundamentals in the past year, underpinned by recent credit rating upgrades. In January this year, Moody’s upgraded Kenya’s long-term foreign currency sovereign credit rating from “Caa1” to “B3”, noting that the country’s near-term risk of default had fallen. The agency also noted that Kenya’s external liquidity position had improved, supported by higher-foreign exchange reserves, a narrower current account deficit, and a stable currency.
Since the start of the Middle East war in March 2026, Kenya has seen a deterioration in some of its fundamentals like the current account deficit, as costlier fuel inflates imports, resulting in a wider trade deficit. However, other fundamentals like the exchange rate have held steady, supported by resilient foreign exchange reserves. These reserves have recently been topped by the State’s sale of a 15 percent stake in Safaricom to Vodacom and proceeds from Sh97.2 billion ($750 million) financing from the World Bank at the end of June.
Kenya’s foreign currency reserves closed last week at Sh1.95 trillion ($15 billion) or an equivalent 6.1-month import cover. The lower Eurobond yields are a pivotal measure of debt affordability for Kenya in the international capital markets as it prepares to issue a new Eurobond by December. The National Treasury annual borrowing plan for the 2026/27 cycle pencils an issuance of Sh105.8 billion ($815 million) in the second quarter of the current fiscal year.
Bond yields in advanced economies like the US and Japan have seen a significant jump in recent weeks on worsening fiscal and inflation outlooks. Despite narrower credit spreads, overall external borrowing costs for many emerging markets sovereigns remained steep because of large US debt issuance, higher real rates, and a fading convenience yield. This has contributed to higher US Treasury yields, offsetting much of the benefit from spread compression.
Key points
- Kenyan Eurobond yields have decreased, maintaining debt affordability for the country.
- Improved economic fundamentals and credit rating upgrades have contributed to the ease in Eurobond yields.
- The National Treasury plans to issue a new Eurobond worth Sh105.8 billion ($815 million) in the second quarter of the current fiscal year.
