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Apex bank retires Sh20bn bonds early, misses larger target
The government’s domestic bond issuance calendar for the 2025/2026 fiscal year shows that the Treasury planned for six domestic bond buybacks, including papers valued at Sh103.4 billion with an August 2026 maturity and Sh144.5 billion maturing in September 2027.
The November Treasury bond buyback failed to hit its target of Sh30 billion after the Central Bank of Kenya (CBK) rejected more than a third of the offers made by bondholders.
The CBK bought back Sh20.08 billion worth of the securities out of offers of Sh34.3 billion at a price of Sh103.29 per bond unit of a face value of Sh100.
The Treasury was buying back a portion of the three-year bond issued in May 2023, which is due to mature in May 2026. The bond has an outstanding value of Sh76.54 billion, which will drop to Sh56.46 billion once the buyback is settled.
The average yield to maturity on accepted offers stood at 7.78 percent, just two basis points below the average yield of 7.8 percent demanded by bondholders to sell to the government.
The bond has a coupon (fixed interest rate) of 14.228 percent and last paid investors their semiannual returns on November 10, 2025.
According to analysts, the small differential between demanded and accepted yields indicates that investor bids were not the primary reason behind the CBK’s decision to reject Sh14.2 billion worth of offers.
“The rejection rate thus points to potential cash flow concerns for the government in the near term —hence the need to keep some cash in hand— given that the price demanded by bondholders closely matched that of accepted offers,” said a bond dealer in a commercial bank.
Earlier this month, the Treasury raised Sh52.8 billion from the sale of reopened 15 and 20-year bonds, which had realised bids worth Sh92.9 billion.
The proceeds of this sale were expected to be partially used to fund the buyback, given that the state is currently ahead of its pro-rated borrowing target with a net haul of Sh434 billion so far in the current fiscal year.
However, the CBK reopened a further two bonds for sale last week with an eye on the buyback expenditure. They are a 15-year paper first sold in 2019 and a 25-year one issued in 2022 —targeting Sh40 billion and marking a rare occasion of the CBK making two bond sales within a single month outside of tap sales.
The two reopened bonds, which have been on sale since November 11, will be auctioned on Wednesday.
In choosing to pursue domestic bond buybacks in the current fiscal year, the government has been looking to smoothen maturities away from months when high repayment obligations would pose a liquidity problem for the exchequer.
Buybacks allow the government to repurchase its own debt from investors/holders before the maturity date.
In addition to smoothening the future maturity profile, buying back bonds can also help the exchequer save on interest costs by replacing high interest instruments with lower paying paper.
The government’s domestic bond issuance calendar for the 2025/2026 fiscal year shows that the Treasury planned for six domestic bond buybacks, including papers valued at Sh103.4 billion with an August 2026 maturity and Sh144.5 billion maturing in September 2027.
In February this year, the CBK carried out its first domestic bond buyback with a Sh50 billion repurchase of portions of three bonds that were due to mature later in April and May, easing the headache of payments in the two months.
The liability management plan also calls for issuance of switch bonds, in which investors or bondholders are given the option of rolling over their expected final payouts to another security with a longer maturity profile.
Previous switch bond issuances have been utilised to move holders of maturing short term Treasury bills to longer dated bonds.
