The Central Bank of Kenya (CBK) is now issuing long-term bonds at a higher frequency due to dropping interest rates, helping lower debt service costs for the government.
The apex bank avoided issuing long-term bonds in the previous two years as it warned of refinancing risks linked to paying high returns to investors over a long duration.
The jitters saw CBK limit its issuances in the first half of 2024 to shorter-dated papers, which mostly ranged from two to five years.
But in a major shift, the bonds issued by the CBK across August 2025 now heavily feature re-openings of longer-dated bonds, including the rare 30-year savings bond, which was offered again to investors in June.
According to analysis by this publication, CBK mostly re-opened two-, three- and five-year papers in eight months through to August 2024.
The bonds issued in 2025 have contrasted sharply with most auctions being re-openings of 15-year, 20-year, and 25-year papers.
Lower interest rates have meant that CBK can afford to take investor cash for long durations while keeping the bondholders' returns down.
The apex bank is, however, yet to issue new dated bonds as it avoids short-term shocks to interest rates.
Under re-openings, the rate of return paid to investors is already pre-determined, with the auction only setting the price paid by bidders.
CBK only attempted to issue a new bond in March last year, but still set a rare coupon for the fresh paper at 16 percent.
The issuance of reopened long-term bonds, however, still serves the government by allowing it to test the market’s appetite for longer-duration papers without creating a spike in domestic debt service costs.
“It’s easier to open a bond with a 12-year coupon than risk a new bond with a higher coupon, which would impact debt service costs,” noted Ronny Chokaa, a senior research analyst at Capital A Investment Bank.
“This helps the government evade short-term interest rate spikes but postpones liquidity risk as CBK could be forced to meet an outsized single-day maturity in the future.”
Falling interest rates have also helped re-establish the yield curve slope after an inversion in recent years from higher interest rates.
The yield curve usually slopes upwards, with returns offered by short-term papers being lower than those of term bonds, reflecting the premium of lending to the government for a longer duration.
During periods of high interest rates, the yield curve usually reverses, with short-term papers having a higher yield as investors avoid taking a loss by holding funds in term papers as returns rise.
Interest rates on short-term papers, including Treasury bills, have fallen faster than yields on term bonds, according to an analysis of the yield curve data.
The return of a 91-day paper, for instance, fell by 7.81 percentage points between July 12, 2024, and July 11, 2025.
The two-year and five-year benchmark bonds also had yields fall faster by 7.3416 percentage points and 6.7454 percentage points, respectively.
The drop in yields for the 10-year, 15-year, and 20-year papers has been less profound at 1.7736, 3.91143, and 3.4601 percentage points, respectively.
