Kenya Moves to Raise KSh 50 Billion Through Long-Dated Treasury Bonds as Domestic Borrowing Intensifies

Kenya’s government has returned to the domestic debt market with a new push to raise KSh 50 billion through the issuance of long-term Treasury bonds, underscoring the growing importance of local financing in funding the national budget. Acting in its role as the state’s fiscal agent, the Central Bank of Kenya (CBK) has announced the sale of two fixed-rate instruments: a 15-year Treasury bond and a 25-year Treasury bond, both offering relatively high coupon rates aimed at sustaining investor appetite amid an increasingly crowded domestic market.

The offer period for the two bonds runs from January 22, 2026 to February 11, 2026, with the auction scheduled for February 11 and settlement set for February 16. Proceeds from the sale will be used for budgetary support, reflecting the government’s reliance on domestic borrowing to meet its financing needs during the FY2025/26 fiscal year.

This latest bond offer comes at a critical moment, shaped by slowing demand in recent Treasury bill auctions, elevated refinancing needs, and a broader macroeconomic environment where policymakers are balancing debt sustainability with fiscal realities.

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Details of the Bond Offer: Tenor, Coupons, and Maturity Dates

According to the CBK prospectus, the 15-year Treasury bond carries a coupon rate of 12.34% and will mature on July 10, 2034. The 25-year bond, aimed squarely at long-term investors such as pension funds and insurance companies, offers a higher coupon rate of 13.40% and matures on May 25, 2043.

These coupon levels are notable in the context of Kenya’s interest-rate environment. While inflation has moderated and policy rates have stabilized, the government continues to offer elevated yields on longer-dated securities to compensate investors for duration risk and fiscal uncertainty.

The maturity structure of the two bonds reflects a deliberate strategy by the Treasury and CBK to extend the debt maturity profile, reducing rollover pressure in the near term while locking in funding for extended periods.

Recent Treasury Bill Auctions Signal Softer Demand

The bond offer follows a Treasury bills auction that revealed signs of cooling investor demand, particularly for shorter-dated instruments. In last week’s auction, the CBK accepted KSh 18.21 billion out of KSh 24 billion offered, rejecting higher-cost bids in line with its yield-management strategy.

The three-month Treasury bill emerged as the most attractive instrument, attracting bids worth KSh 8.83 billion against an offer of KSh 10 billion. By contrast, the 91-day Treasury bill was the least popular, drawing bids of just KSh 1.37 billion against KSh 4 billion on offer—though the CBK accepted the full amount.

The selective acceptance of bids highlights the CBK’s continued effort to contain borrowing costs even as financing needs rise. It also signals growing investor sensitivity to yields, with demand increasingly concentrated in instruments perceived as offering the best risk-return balance.

Kenya’s Near-Term Debt Maturity Profile Offers Breathing Space

Despite elevated borrowing requirements, Kenya’s near-term debt maturity schedule provides some room for maneuver. As of the start of this week, outstanding maturities through January 2027 stood at:

• KSh 1.01 trillion in Treasury bills
• KSh 320.6 billion in Treasury bonds

When coupon payments are included, the total maturity profile approaches KSh 2 trillion.

Importantly, the next major bond maturity is not due until May 2026, when a bond worth KSh 66.9 billion falls due. This gap gives the CBK and Treasury some flexibility to manage refinancing risks and stagger issuance without facing immediate repayment pressure.

From a debt-management perspective, this spacing is critical. It allows authorities to issue new bonds opportunistically rather than reactively, reducing the likelihood of forced borrowing at unfavorable rates.

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Sustained Domestic Borrowing Defines FY2025/26

The February bond offer must be viewed within the broader context of sustained domestic borrowing throughout the current fiscal year. Between July 2025 and January 2026, Treasury bond reopenings totaled KSh 440 billion, yet investor demand far exceeded supply.

During this period:

• Total bids amounted to approximately KSh 1.17 trillion
• Accepted bids reached about KSh 645.8 billion
• After accounting for KSh 119.8 billion in redemptions, net domestic bond borrowing stood at roughly KSh 526.0 billion

These figures exclude weekly Treasury bill auctions, which are primarily used for short-term liquidity management rather than structural financing.

The scale of demand reflects both limited alternative investment opportunities and strong appetite for government securities offering relatively high, predictable returns in a stable macroeconomic environment.

January’s Bond Auction Reinforced Appetite for Long-Dated Paper

January marked the first bond auction of 2026, and the results reinforced investor interest in long-dated securities. The CBK raised KSh 60.6 billion after receiving KSh 71.5 billion in bids for 20-year and 25-year fixed-coupon bonds.

The outcome suggested that institutional investors remain willing to lock in funds for extended periods, particularly when yields are attractive and inflation expectations are anchored. For the government, this appetite provides an opportunity to lengthen maturities and reduce refinancing risk.

However, reliance on long-dated domestic borrowing also raises questions about future interest costs and the crowding out of private sector credit—issues that continue to feature prominently in policy debates.

Financing the Budget: The FY2025/26 Plan

Kenya’s FY2025/26 financing plan targets KSh 901.0 billion in net funding, split between:

• KSh 613.5 billion from domestic sources
• KSh 287.4 billion from external borrowing

The emphasis on domestic financing reflects both constrained access to external markets and a strategic shift toward reducing foreign-exchange risk. While domestic borrowing avoids currency exposure, it comes at the cost of higher interest rates and increased pressure on local financial markets.

Balancing these trade-offs is central to Kenya’s fiscal strategy, particularly as debt service costs continue to consume a growing share of government revenue.

Equity Market Snapshot: Activity Picks Up at the NSE

Alongside developments in the fixed-income market, activity at the Nairobi Securities Exchange (NSE) showed signs of improvement. Market turnover rose to approximately US$ 22.8 million for the week, reflecting increased participation even as select stocks faced price pressure.

Stanbic Bank Kenya dominated trading activity, accounting for 17.8% of weekly turnover. Despite heavy trading, the stock declined 1% to close at KSh 198.00, illustrating the disconnect that can emerge between liquidity and price performance.

Among top movers, the Absa New Gold ETF stood out as the strongest gainer, surging 81.4% to KSh 5,915, largely due to price adjustments linked to movements in the underlying gold price. On the downside, BOC Kenya was the worst performer, falling 9% to KSh 120.75.

The contrast between strong fixed-income demand and mixed equity performance underscores investor preference for yield certainty over equity risk in the current environment.

Why This Matters: Reading the Signals Behind the Numbers

The government’s renewed push into long-dated domestic bonds carries implications that extend well beyond the immediate KSh 50 billion target.

1. Debt Sustainability and Interest Costs

While domestic borrowing reduces exposure to currency risk, it often comes at a higher interest cost. Coupons above 13% lock in significant long-term obligations that future budgets must accommodate.

2. Investor Behavior and Market Capacity

Strong demand for bonds signals confidence in government credit, but it also raises concerns about market saturation. As issuance accelerates, sustaining demand without pushing yields higher becomes more challenging.

3. Private Sector Credit

Heavy government borrowing can crowd out private sector lending by absorbing bank liquidity. This dynamic has implications for economic growth, particularly for small and medium-sized enterprises.

4. Refinancing Risk Management

By extending maturities, the Treasury reduces near-term rollover risk, buying time to implement fiscal reforms and stabilize debt dynamics.

Historical Perspective: Kenya’s Long Road with Domestic Debt

Kenya’s reliance on domestic borrowing is not new. Over the past two decades, government securities have become the backbone of local capital markets, providing banks and institutional investors with a stable investment outlet.

However, the scale and persistence of issuance in recent years mark a departure from earlier cycles. What was once a supplementary financing tool has become the primary funding source, reflecting structural shifts in global capital flows and domestic fiscal needs.

Past episodes show that sustained domestic borrowing can be managed successfully—but only when paired with credible fiscal consolidation and economic growth.

Looking Ahead: What Investors and Policymakers Will Watch

As the February bond auction approaches, attention will focus on:

• Subscription levels and bid-to-cover ratios
• Yield trends and bid rejection rates
• Investor distribution across tenors

Beyond the auction, the broader trajectory of domestic borrowing will remain a key macroeconomic variable, shaping interest rates, liquidity conditions, and market confidence.

Conclusion: A Test of Market Depth and Fiscal Strategy

The CBK’s bid to raise KSh 50 billion through 15- and 25-year Treasury bonds is more than a routine funding exercise. It is a test of the domestic market’s depth, investor confidence, and the government’s ability to balance financing needs with long-term sustainability.

While demand for long-dated paper remains strong, the cost of borrowing and its implications for future budgets cannot be ignored. As Kenya navigates FY2025/26, the success of such auctions will play a central role in determining the stability of public finances and the broader financial system.

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photo source: Google

By : Elsie Njenga

3rd February, 2026