Shorter Maturity, Bigger Risk? Kenya’s Debt Profile Contracts to 7.4-Year Average

In a striking shift, Kenya’s average maturity for domestic debt instruments—Treasury bills and bonds combined—has shrunk to 7.4 years as of June 2025, down from 7.5 years in 2024. This signals a tilt toward shorter-dated instruments in the government’s borrowing mix. TradingRoom

This compression is largely driven by elevated uptake of Treasury bills, especially the 364-day instrument, which now commands a greater share relative to the longer-term bond portfolio.

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Why Investors Are Flocking to T-Bills

Yield Attraction in a Rate-Cutting Environment

With the Central Bank of Kenya (CBK) cutting its policy rate by 25 basis points to 9.5%, shorter-dated paper has become more attractive to yield-seeking investors. The 364-day T-bill now offers yield premiums over the 182-day and 91-day variety, prompting a rotation toward it. Reuters

As yields on longer instruments become comparatively less compelling, demand has skewed toward the shorter end.

Rising T-Bill Stock and Shift in Debt Composition

From December 2024 to June 2025, the ratio of T-bills to bonds climbed from 12:88 to 17:83, marking a clear structural shift in Kenya’s domestic debt composition. TradingRoom

By September 12, 2025:

• T-bills stood at KSh 1.07 trillion, or 16.6% of securities (16.2% of gross domestic debt)
  
• Treasury bonds made up KSh 5.37 trillion, or 83.4% of securities (81.4% of gross domestic debt)
  
• Total domestic debt was estimated at KSh 6.6 trillion, up 11.9% from December 2024 levels
  TradingRoom
  

In other words, T-bills are playing a larger role than before.

Liquidity Preference & Shorter Duration Bias

In uncertain macro conditions, investors may prefer the “safest short path” — shorter maturities that allow faster reallocation of capital or reduce duration risk. The shift suggests growing risk aversion or hedging behavior among Kenyan institutional investors.

Risks That Come with Shorter Maturities

1. Refinancing Risk Intensifies

As more debt lies in shorter instruments, frequent rollovers are required. If investor appetite wanes, or if yields rise sharply, rollover costs could spike, straining fiscal flexibility.

2. Higher Debt Service Volatility

Shorter duration means more sensitivity to changes in interest rates. Should CBK or market rates move upward, coupon and yield resets can raise servicing burdens more rapidly.

3. Pressure from Maturing Obligations

The contraction in maturity suggests that some large upcoming redemptions are pressing the government to manage its liability profile actively. Treasury may feel pressure to juggle new issuances or engage in switch operations.

Indeed, Reuters recently reported Kenya is exploring buybacks of maturing local bonds paired with issuance of longer-dated securities, to smooth maturity cliffs and reduce rollover stress. Reuters

That suggests maturity management is becoming a necessity, not an option.

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How Kenya Is Trying to Respond

Strategic Issuance & Tap Sales

In the FY 2025/26 Annual Borrowing Plan, the government underscores that Treasury bills will be used primarily for liquidity and cash management, while longer-duration bonds will remain the centerpiece for financing. National Treasury (Borrowing Plan)

The strategy also emphasizes liability management operations — such as switches (rolling short maturities into longer instruments) and buybacks of shorter paper to smooth out the maturity profile.

Reopening Infrastructure Bonds & Longer-Dated Issues

CBK is reopening infrastructure bonds (e.g. IFB1/2018/015, IFB1/2022/019) and offering long-dated tenors via tap sales to absorb market demand while extending duration. Analysts note that these reopenings help diversify the maturity structure. IMBank Morning Note

By steering some of the short-term T-bill demand into longer instruments, the government hopes to arrest further maturity shortening.

Diversification & External Options

Under the Medium-Term Debt Management Strategy (MTDS), the Treasury aims to gradually reduce T-bill exposure over the medium term, and to raise more external and ESG-linked instruments to relieve domestic market pressure. MTDS Draft

Nonetheless, external borrowing must be calibrated to avoid exposing the country to elevated foreign exchange risk.

Broader Debt & Economic Landscape

Public Debt Growth & Composition

By May 2025, Kenya’s total public debt was roughly KSh 11.5 trillion, up from KSh 10.4 trillion a year earlier. Domestic debt grew ~16.6% to KSh 6.2 trillion, while external debt rose modestly to ~KSh 5.3 trillion. Cytonn Report

Domestic debt has become the larger share of Kenya’s total sovereign obligations, intensifying the importance of domestic capital markets in debt sustainability.

Debt Sustainability Risks

Kenya faces elevated risk of debt distress, especially given high debt servicing costs and structural vulnerabilities. The debt-to-GDP ratio remains above 65%, but more critically, the present value of public debt exceeds recommended thresholds. MTDS / DSA Section

Should interest rates or inflation rise, the burden multiplies.

Yield Curve & Market Signals

Recent CBK Weekly Bulletins show continued activity in both T-bills and bond auctions. For instance, in the week ending September 18, the secondary bond market turnover rose by 36.67%, signaling renewed investor engagement. CBK Weekly Bulletin

Additionally, bond auctions have been oversubscribed, as seen in the reopening of long bonds where bids dramatically outpaced issuance, reinforcing confidence in longer tenors.

Forecasting the Next 12-24 Months

• If T-bill demand holds and switch operations scale, we might see a stabilization (or modest lengthening) of the average maturity around 7.3–7.6 years.
  
• But if short tenor demand weakens or rollover stress increases, the maturity could compress further, pushing more of the debt burden into short-duration instruments.
  
• The execution of buybacks, especially during favorable yield environments, will be critical to moderating rollover and interest risks.
  
• Keeping yields on longer instruments attractive is essential to coax capital out of T-bills. The government will need to balance coupon rates, issuance size, and term premia carefully.
  
• Macro variables (inflation, foreign exchange, interest rates) remain key stressors. Should inflation surge or rates reprice upward, the maturity structure may come under stronger pressure.
  

Conclusion: A Maturity Dilemma

Kenya’s debt profile is evolving. The shift toward shorter maturities (with a blended 7.4-year average) reflects investor preference, macro conditions, and strategic necessity. But this carries inherent risks—particularly in refinancing, interest sensitivity, and rollover shock exposure.

The choices ahead rest on managing that trade-off: using yield curve tools, executing liability operations, issuing longer paper, and preserving market confidence. The government’s success in navigating this maturity tightening will influence Kenya’s fiscal trajectory and debt sustainability.

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By: Montel Kamau

Serrari Financial Analyst

24th September, 2025