Wealthy investors and fund managers in Kenya have invested a record Sh1 trillion in seven bond auctions over four months, reflecting a preference for passive investments over business ventures. The Central Bank of Kenya (CBK) reported that investor bids since July exceeded the Sh1 trillion mark, surpassing the Sh480 billion target. The CBK accepted Sh654 billion from investor bids, achieving 65.1 percent of its net domestic borrowing target for the 2026/27 fiscal cycle.
The growing trend of investing in bonds and unit trusts instead of starting businesses is attributed to the abundance of cash in the economy. Top buyers of bonds, including commercial banks, insurance firms, and households, continue to favor fixed-income securities despite declining domestic interest rates. The CBK governor, Kamau Thugge, stated that the domestic market supports the growing budgetary financing requirements, facilitated by effective collaboration between the National Treasury and CBK.
The CBK has successfully lengthened the maturity of domestic debt by reopening medium to long-term bonds, supported by ample market liquidity and relatively lower interest rates. The sale of bonds marks a continuation of the trend of Kenyans investing in bonds and money market funds while shunning riskier ventures like starting a business. This presents an opportunity for the economy to create new jobs.
Infrastructure bonds have been particularly attractive to passive investors due to their tax exemption on interest. The largest haul from bonds came in August under three reopened infrastructure bonds, which raised Sh312 billion against a target of Sh150 billion. The three tax-free bonds attracted bids worth Sh460.3 billion, achieving a performance rate of 307 percent.
All seven bond auctions over the period have been oversubscribed, underlining continued investor appetite for government paper. The CBK further attained success in pushing out maturities of Sh49.6 billion through four switch bonds, surpassing its target of Sh45 billion after outsized subscriptions of Sh52.4 billion. This is expected to help manage domestic borrowing costs going into 2027.
Despite rebounding inflation threatening the interest rates outlook, analysts expect a steady yield curve in the final quarter of the year. The CBK is currently in the market seeking to raise Sh50 billion through the reopening of 15- and 30-year Treasury bonds. Additionally, the CBK is seeking to switch Sh10 billion from maturing Treasury bills to a 10-year bond, which would extend the part of the paper’s maturity by three years.
Treasury bonds have remained a popular passive investment option, making up 83.21 percent of the Sh7.88 trillion domestic debt stock as of October 23. Financial corporations, including commercial banks, pension funds, and insurance companies, held the bulk of local debt at 80 percent. Investors have also packed close to Sh1 trillion through collective investment schemes like money market funds, special funds, and fixed-income funds.
Key points
- The Central Bank of Kenya reported a record Sh1 trillion in investor bids for seven bond auctions over four months.
- Infrastructure bonds have been particularly attractive to passive investors due to their tax exemption on interest.
- Despite rebounding inflation, analysts expect a steady yield curve in the final quarter of the year.
