Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Investors’ profits from Treasury bonds rise eightfold
Bond prices usually have an inverse relationship to yields implying that when interest rate falls, the valuation of previously issued papers will rise on shifting demand.
Treasury bond investors grew profits from selling government papers at the Nairobi bourse eight times to Sh101.4 billion in six months to June as the dealers took advantage of rising prices.
Data from the Capital Markets Authority (CMA) show investor profits from bonds grew from Sh11.1 billion in the six months to June last year.
Falling rates on primary Treasury bonds has forced investors eyeing high returns to seek highly prized bonds from the secondary trading market at the Nairobi Securities Exchange (NSE), raising their prices.
The higher bond prices pushed investors to sell more bonds at the NSE, allowing to gain the eight-fold jump in profits.
Investors bought government bonds at a face value Sh1.28 trillion and sold the government papers through the NSE for Sh1.39 trillion, booking a profit of Sh101.4 billion in the six months to June 2025.
Bond prices usually have an inverse relationship to yields implying that when interest rate falls, the valuation of previously issued papers will rise on shifting demand.
The Central Bank of Kenya (CBK) cut its benchmark rate resulting in lower overall interest rates, including returns on new government bond issuances.
Investors seeking to lock in a higher return from bonds rushed to the NSE to buy the existing papers at a premium, translating to profits for holders.
Investors sold government bonds, which had been bought at Sh1.28 trillion (the face value) through the NSE for a consideration of Sh1.39 trillion resulting in a profit of Sh101.4 billion across the six months to June 2025.
Bonds with a face value of Sh521.7 billion sold for Sh532.8 billion resulting in the Sh11.1 billion profit in the previous period to June 2024.
Interest rates on government securities have trended lower over the past year primarily on cuts to the Central Bank of Kenya (CBK) benchmark rate to send bond valuations higher.
This is as investors who missed out on bonds previously issued in the primary market rush to the secondary market to lock in the high returns as the coupon/interest earnings on new issuances drop off.
High earning infrastructure bonds have been the most sought after by investors based on their sizable coupons. An investor was required to pay up to a 22 percent premium as of Monday this week to buy the 8.5-year infrastructure bond issued in February 2024 which had an 18.46 percent coupon.
The price on the infrastructure bond was Sh122 compared to the primary issuance price of Sh100 per unit or the par value. The paper has been the highest attraction for investors for having the largest return in the secondary market.
Bonds are usually sold at a premium or discount in the secondary market with demand determining whether investors make a profit or loss from the sales. During periods of rising interest rates, bond prices fall as investor demand wanes where buyers see it better to find higher yields from CBK primary issuances in contrast to NSE purchases.
Such periods usually see bond turnover in the secondary market fall as investors avoid losses from selling bonds at discounts.
Equities listed on the NSE have however rivalled the return from selling bonds with capital gains from stocks crossing 40 percent on average on a year-to-date basis.
Interest rates in the primary issuance market have fallen significantly since the same time last year when CBK commenced a rate cutting cycle, cutting the benchmark from 13 percent in August 2024 to 9.5 percent at present.
Gains from selling government bonds in the secondary market have outstripped assets such as fixed deposits, money market funds and Treasury bills whose returns stand in single digits.
