Kenya Opens Doors to KSh120 Billion Treasury Bond Investment with Minimum Entry Point of KSh50,000

The Central Bank of Kenya (CBK) has opened a strategic window for retail and institutional investors to participate in government securities through two reopened fixed-coupon Treasury bonds, each targeting to raise KSh60 billion for budgetary support. The initiative, which allows entry from as low as KSh50,000, represents a significant opportunity for Kenyans to invest in long-term government debt instruments while earning attractive double-digit returns at a time when the country seeks to finance its fiscal deficit of KSh923.2 billion for the 2025/26 financial year.

The reopened bonds, identified as FDX1/2019/020 and FDX1/2022/025, form part of the government’s comprehensive domestic borrowing strategy as Kenya navigates the delicate balance between fiscal consolidation and economic growth. According to CBK’s official notice, “Central Bank of Kenya, acting in its capacity as fiscal agent for the Republic of Kenya, invites bids for the above bonds whose terms and conditions are as follows.”

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Attractive Coupon Rates in a Declining Yield Environment

The 20-year bond, FDX1/2019/020, offers investors a coupon rate of 12.873% and has 13.2 years remaining until its maturity date of March 21, 2039. Meanwhile, the 25-year bond, FDX1/2022/025, provides an even more attractive coupon rate of 14.188%, with 21.8 years remaining until it matures on September 23, 2049. Both instruments are subject to a standard 10% withholding tax on interest income, which is automatically deducted before payments are made to investors.

These coupon rates come at a particularly opportune time for investors, as Treasury bond yields have been declining across the market. Industry analysts note that while 25-year government papers were attracting coupon rates in the region of 14% in October and November 2024, current rates reflect the government’s efforts to reduce borrowing costs. The Kenya 10-year government bond yield has dropped to around 13.13%, representing a significant decline from the highs of over 16% seen in 2023.

According to financial sector analysis, by February 2025, Treasury bill yields had dropped below 9% for the 91-day paper for the first time since late 2022, partly due to CBK actively rejecting expensive bids to lower the government’s borrowing costs and implementing cuts in the benchmark interest rate. This declining yield environment makes the current bond offerings particularly attractive for long-term investors seeking to lock in higher returns before rates potentially decline further.

Kenya’s Growing Reliance on Domestic Borrowing

The KSh120 billion bond issuance is part of Kenya’s broader fiscal strategy to finance the budget deficit through a balanced approach between external and domestic borrowing. The FY2025/26 fiscal deficit, including grants, is projected at KSh923.2 billion, down from KSh997.5 billion in FY2024/25. This deficit will be financed through net external borrowing of KSh287.7 billion and net domestic borrowing of KSh635.5 billion.

The government’s Annual Borrowing Plan for FY2025/2026 outlines a gross financing requirement of KSh1,547.3 billion, equivalent to 8% of GDP. This comprises KSh901.0 billion to finance the fiscal deficit and KSh646.3 billion to refinance maturing domestic and external debt obligations. The borrowing plan adopts a balanced approach with a gross borrowing mix of 25% external and 75% domestic financing.

Data from recent CBK auctions shows that the government has been actively tapping domestic markets throughout the fiscal year. Since June 2025, the Central Bank of Kenya has raised KSh287.2 billion through Treasury Bond auctions to finance the government’s budget deficit. In October 2025 alone, CBK collected KSh85.3 billion from Treasury bond auctions, receiving bids worth KSh118.8 billion against a target of KSh50 billion, representing a 237.8% oversubscription rate.

This strong investor appetite for government securities reflects both the attractive returns on offer and the relative stability of Kenyan government debt as an investment option. Investment analysis indicates that the proportion of domestic financing is estimated to rise slightly to 68.8% in FY2025/26 from 68.3% in FY2024/25, underscoring the government’s increasing reliance on domestic markets.

Investment Categories and Accessibility

The reopened bonds offer two distinct bidding categories designed to accommodate both retail and institutional investors. For non-competitive bids, investors can participate with a minimum of KSh50,000 and a maximum of KSh50 million per Central Securities Depository (CSD) account per tenor. This category is particularly suitable for retail investors who want guaranteed allocation at the weighted average rate determined by the auction.

Competitive bids require a minimum investment of KSh2 million per CSD account per tenor. In this category, investors specify the yield or price they are willing to accept, competing for allocation based on the rates they bid. Successful competitive bidders may receive allocation at their bid rate or better, depending on the auction results.

The CBK DhowCSD platform, launched in 2023, has revolutionized access to government securities by providing a simple, efficient, and secure digital portal for investing. Through this platform, individuals and corporate bodies can invest in Treasury bonds without going through intermediaries, significantly reducing the barriers to entry that previously existed in the government securities market.

According to reports on the DhowCSD system, the platform has recently integrated M-Pesa mobile payment functionality, allowing investors to complete payments for successful bids of up to KSh250,000 directly from their mobile phones. This integration represents a significant enhancement to the investment process, making it more convenient for retail investors to participate in government securities auctions.

All successful bidders must obtain their payment key and amount payable through the CBK DhowCSD Investor Portal or mobile app under the Transactions tab. The notice emphasizes that defaulters who fail to make timely payments may be barred from future investments in government securities, underscoring the importance of meeting settlement obligations.

Critical Dates and Trading Information

The bond sale period runs from December 9, 2025, through January 7, 2026, providing investors with nearly a month to evaluate the opportunity and submit their bids. The bid submission deadline is set for January 7, 2026, at 10:00 a.m., with the auction taking place on the same day. Settlement is scheduled for January 12, 2026, when successful bidders must complete their payments.

Investors will be able to access their payment keys starting January 9, 2026, through the DhowCSD platform. Secondary trading in multiples of KSh50,000 will commence on January 12, 2026, providing liquidity for investors who may need to exit their positions before maturity.

Both bonds will be listed on the Nairobi Securities Exchange (NSE), Kenya’s primary securities exchange that serves as the leading stock market platform in East Africa. The NSE provides automated trading facilities for both equities and fixed-income securities, with Treasury bonds being traded through the exchange’s Fixed Income Securities Market Segment. This listing ensures transparency and provides an active secondary market for bondholders who wish to trade their holdings before maturity.

The bonds also qualify for statutory liquidity requirements for commercial banks and non-bank financial institutions under the Banking Act CAP 488. This regulatory qualification makes them particularly attractive to financial institutions that must maintain certain levels of liquid assets, potentially increasing demand from institutional investors.

Rediscounting and Exit Options

CBK has maintained a rediscounting facility that provides bondholders with a liquidity option before maturity. According to the official prospectus, rediscounting will be available as a last resort at 3% above the prevailing market yield or coupon rate, whichever is higher. Investors must submit written instructions through the CBK DhowCSD portal to access this facility.

While rediscounting provides an emergency exit option, the 3% penalty in yield terms means investors will receive less than the full value of their investment. Financial advisors typically recommend that investors only consider Treasury bonds if they can commit funds for the full tenor, as premature exit through rediscounting can significantly reduce returns.

The Central Bank has also stated that it reserves the right to accept or reject applications in whole or in part without giving reasons, and the bonds may be reopened in the future. This reopening provision allows CBK to tap the same bond series multiple times, building larger benchmark bonds that enhance liquidity in the secondary market.

Strategic Context: Kenya’s Debt Management

The bond issuance comes as Kenya pursues an ambitious fiscal consolidation agenda aimed at reducing the budget deficit and slowing the accumulation of public debt to strengthen fiscal sustainability. The government aims to reduce the fiscal deficit from 5.7% of GDP in FY2024/25 to 4.8% of GDP in FY2025/26, representing significant progress toward fiscal discipline.

Kenya’s public debt burden stood at approximately 66.6% of GDP as of September 2024, surpassing the internationally recommended threshold of 50% by 16.6 percentage points. This elevated debt level has raised concerns about debt sustainability and the country’s ability to service its obligations without compromising essential public services and development spending.

However, recent credit rating updates have been cautiously optimistic. Moody’s upgraded Kenya’s outlook to positive, citing improved debt management practices and stronger fiscal discipline. The successful execution of liability management operations, including the February 2024 Eurobond buyback that refinanced US$1.5 billion of the US$2 billion Eurobond due in June 2024, has significantly de-risked Kenya’s public debt profile.

The shift toward domestic borrowing, while potentially creating crowding-out effects for private sector credit, has reduced exposure to foreign exchange risks that have historically complicated debt servicing. The government’s strategy of lengthening the maturity profile through long-tenor bonds like the current 20-year and 25-year offerings helps reduce refinancing risk and smooth out the debt repayment schedule.

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Market Demand and Investor Appetite

Recent Treasury bond auctions have consistently attracted strong investor interest, with oversubscription rates frequently exceeding 200%. In August 2025, CBK collected over KSh200 billion from infrastructure bonds, demonstrating the robust appetite among domestic investors for government securities.

The strong demand reflects several factors. First, government securities remain among the safest investment options in the Kenyan market, backed by the full faith and credit of the government. Second, the attractive yields on offer provide returns significantly above inflation, which has been averaging around 4.5% in 2024, down from 7.7% in previous years.

Third, institutional investors including banks, pension funds, and insurance companies face regulatory requirements to hold certain portions of their assets in government securities. Analysis by Standard Investment Bank noted that given the steady decline in bond yields and recent auction trends, investors have been rushing to lock in current rates before they decline further, particularly for papers with attractive coupon rates like the 25-year bond.

Fourth, the tax treatment of bonds makes them attractive compared to other fixed-income investments. While interest income is subject to 10% withholding tax, infrastructure bonds (which are occasionally issued) offer tax-exempt returns, making them particularly popular among high-income investors seeking to reduce their tax burden.

Investor Considerations and Risk Factors

While Treasury bonds offer attractive features, potential investors should carefully consider several factors before committing funds. The long tenors of 13.2 years and 21.8 years mean that investors’ capital will be tied up for extended periods, during which economic conditions and personal financial circumstances may change significantly.

Interest rate risk represents a key consideration. If market interest rates rise after purchase, the market value of these fixed-rate bonds will decline, potentially resulting in capital losses for investors who need to sell before maturity. Conversely, the current declining rate environment suggests that these bonds may increase in value if yields continue to fall, providing capital gains opportunities for secondary market traders.

Inflation risk must also be evaluated. While the fixed coupon rates of 12.873% and 14.188% currently provide substantial real returns above the 4.5% inflation rate, sustained increases in inflation over the long tenor could erode the real value of interest payments and principal repayment.

Liquidity considerations are important for retail investors. While the bonds will be listed on the NSE and tradeable in the secondary market, trading volumes for long-dated government bonds tend to be relatively thin compared to equities or short-term Treasury bills. Investors may face challenges finding buyers at favorable prices if they need to exit positions urgently.

The creditworthiness of the Kenyan government, while generally considered strong for domestic debt obligations, should be monitored. The country’s debt-to-GDP ratio above 66% places it in the moderate-to-high risk category for debt distress according to international frameworks. However, the government has never defaulted on domestic debt obligations, and such securities benefit from the government’s ability to raise revenue through taxation.

Access Points and Support Services

Investors seeking to participate in the bond auction have multiple access channels. They can invest directly through the CBK DhowCSD platform, which offers both web portal and mobile app access available on Google Play Store and Apple App Store. The platform provides comprehensive services including CSD account opening, bidding for government securities, portfolio tracking, and secondary market trading capabilities.

Alternatively, investors can work through commercial banks, investment banks, and licensed stockbrokers who act as custodians and facilitate the investment process. This option may be preferable for investors who want professional guidance or who are making larger investments that benefit from personalized service.

CBK has established currency centers in major towns across the country including Mombasa, Kisumu, Eldoret, Nyeri, Meru, Kisii, and Nakuru, where investors can receive in-person assistance and information about government securities. For additional inquiries, investors may contact the CBK Financial Markets Department at NDO@centralbank.go.ke.

The registration process through DhowCSD typically takes two to three days for approval, during which CBK verifies the investor’s identity and banking details to comply with Know Your Customer (KYC) requirements. According to platform usage guides, the digitized process has dramatically reduced the turnaround time from the 14 days previously required for manual account opening.

Comparative Returns and Alternative Investments

When evaluating these Treasury bonds, investors should compare them against alternative investment options available in the Kenyan market. Bank fixed deposits currently offer rates ranging from 8% to 12% depending on tenor and institution, making the 12.873% and 14.188% bond coupons competitive, especially when considering the government backing.

Money market funds, which invest in short-term instruments including Treasury bills, have been offering returns in the 9-10% range in recent months. While these provide greater liquidity than long-term bonds, they don’t offer the yield lock-in that fixed-coupon bonds provide, leaving investors exposed to declining rates.

Equity investments on the Nairobi Securities Exchange have shown strong performance, with 2024 being recognized as Africa’s best-performing stock market by Morgan Stanley Capital International, delivering dollar-denominated returns exceeding 60%. However, equities carry significantly higher volatility and risk compared to government bonds.

Real estate investments have traditionally been popular among Kenyan investors, but they require substantially larger capital outlays, carry liquidity constraints, and involve management complexities that government bonds don’t have. The KSh50,000 minimum investment in Treasury bonds makes them accessible to a much broader segment of investors compared to real estate.

Economic Outlook and Policy Direction

The bond issuance occurs against a backdrop of projected GDP growth of 5.3% in both 2025 and 2026, supported by stabilized inflation and cautious monetary easing by the CBK. The economy has demonstrated resilience despite global headwinds, with the first quarter of 2025 recording growth of 4.9%, positioning Kenya as one of the fastest-growing economies in Sub-Saharan Africa.

The government’s Bottom-Up Economic Transformation Agenda continues to guide fiscal policy, emphasizing growth-friendly consolidation that balances debt reduction with continued investment in priority sectors including agriculture, housing, healthcare, and digital infrastructure. This approach aims to generate inclusive growth while maintaining fiscal discipline.

Revenue collection has shown improvement, with Kenya Revenue Authority achieving 100.6% of its tax revenue target for FY2024/25, collecting KSh2.6 trillion. This performance provides a stronger foundation for debt servicing and reduces the pressure for additional borrowing, potentially contributing to the declining yield environment that makes current bond rates attractive.

The Central Bank’s monetary policy stance has become more accommodative, with the policy rate having been reduced from highs above 12% to current levels around 10.75%, reflecting improved macroeconomic stability, reduced inflation pressures, and efforts to support economic growth. This policy direction suggests that interest rates across the economy may continue their downward trajectory, reinforcing the argument for locking in current bond rates.

Conclusion: Strategic Opportunity for Long-Term Investors

The reopened Treasury bonds represent a compelling opportunity for investors seeking long-term, fixed-income investments backed by government guarantee. The double-digit coupon rates of 12.873% and 14.188% offer attractive real returns well above current inflation rates, while the declining yield environment suggests that these rates may not be available for much longer.

The enhanced accessibility through the DhowCSD digital platform, coupled with the low minimum investment of KSh50,000, democratizes access to government securities that were previously more difficult for retail investors to access. The integration of mobile payment options further simplifies the investment process, removing traditional barriers to participation.

However, potential investors must carefully evaluate their financial circumstances, investment horizon, and risk tolerance before committing to these long-tenor instruments. The 13.2-year and 21.8-year remaining maturities require significant long-term commitment, and while secondary market liquidity provides some flexibility, investors should primarily view these as buy-and-hold investments.

For those with appropriate investment horizons and seeking stable, predictable income streams, these bonds offer an attractive combination of safety, yield, and accessibility. The strong institutional demand from banks, pension funds, and insurance companies provides validation of the bonds’ investment merit, while also ensuring reasonable secondary market liquidity.

As Kenya continues navigating its fiscal consolidation journey while maintaining economic growth momentum, these Treasury bonds serve dual purposes: providing the government with essential financing for budgetary needs while offering investors a secure vehicle for long-term wealth accumulation. With the auction closing on January 7, 2026, interested investors have a limited window to evaluate and participate in this opportunity to lock in attractive rates before they potentially decline further in line with broader market trends.

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By: Montel Kamau

Serrari Financial Analyst

9th December, 2025