The Central Bank of Kenya (CBK) released auction results for the reopened treasury bonds FXD3/2019/015 and FXD1/2018/025, with strong investor demand pushing subscription levels significantly above the amount on offer.
The two fixed-rate bonds have tenors to maturity of 8.4 years and 17.3 years, with coupon rates of 12.3 percent and 13.4 percent respectively.
Strong investor demand
The bonds were heavily oversubscribed, with total bids reaching Kshs 213.7 billion against the Kshs 50.0 billion offered. This translates to an overall subscription rate of 427.5 percent.
The government accepted bids worth Kshs 100.5 billion, resulting in an acceptance rate of 47.0 percent. The partial acceptance indicates the Treasury exercised price discipline, taking advantage of favourable investor demand while managing borrowing costs.
Yields edge lower
The weighted average yield for accepted bids came in at:
- 12.2 percent for FXD3/2019/015
- 13.4 percent for FXD1/2018/025
Notably, yields declined compared to previous reopenings:
- The 12.2 percent yield on FXD3/2019/015 was lower than the 12.6 percent recorded in November 2025.
- The 13.4 percent yield on FXD1/2018/025 was lower than the 14.3 percent recorded in July 2025.
The decline in yields suggests improving investor confidence, strong liquidity in the market, and possibly easing expectations around interest rates.
Real returns remain attractive
With Kenya’s inflation rate at 4.4 percent as of January 2026, the real returns on the bonds remain positive and relatively attractive:
- FXD3/2019/015 real return: 7.8 percent
- FXD1/2018/025 real return: 9.0 percent
These real returns indicate that investors are locking in yields well above inflation, preserving purchasing power while earning significant income.
Tax-adjusted yield comparison
Treasury bonds are subject to a 10.0 percent withholding tax. When adjusted to be comparable with shorter-term government securities that attract a 15.0 percent withholding tax, the tax-equivalent yields are:
- 12.9 percent for FXD3/2019/015
- 14.2 percent for FXD1/2018/025
This enhances the relative attractiveness of the longer-dated bonds for investors seeking higher after-tax returns.
Market implications
The strong oversubscription and declining yields point to sustained appetite for government paper despite high borrowing levels. Investors appear comfortable with medium- and long-term duration exposure, particularly given moderating inflation and relatively stable macroeconomic conditions.
The results also provide the government with additional fiscal breathing room, as borrowing costs ease slightly compared to prior reopenings.
As the Treasury continues to manage refinancing needs and budget financing pressures, sustained demand at lower yields would support fiscal consolidation efforts and reduce debt servicing costs over time.
