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CBK raises Sh60.5bn from January long-term bonds
Investors have been keen on locking in any bond offering a relatively high coupon amid falling interest rates, regardless of tenor, as general interest rates in the fixed income market continue to fall.
The first Treasury bond sale of 2026 was oversubscribed by 19.2 percent driven by strong demand from institutional investors who were chasing the relatively high returns on offer ahead of a possible decline in interest rates in coming months.
Results of the sale published by the Central Bank of Kenya (CBK) showed that investors offered a total of Sh71.54 billion on the pair of reopened 20- and 25-year bonds, against an advertised target of Sh60 billion. The CBK took up Sh60.58 billion from the offered bids.
Ahead of the sale, analysts had identified highly liquid institutional buyers, such as pension funds and fund managers, as a key source of demand for the bonds.
Pension funds have a preference for long-term bonds and have recently seen an increase in their annual collections, partly driven by higher contributions to the National Social Security Fund (NSSF).
Assets under management (AUM) by collective investment schemes more than doubled to Sh679.6 billion in September 2025 from Sh316.4 billion a year earlier, as per latest data from the Capital Markets Authority (CMA). Government securities accounted for the largest share of the AUM at 45.6 percent, followed by bank fixed deposits at 31.8 percent.
“Pension funds remain underweight on equities and have a bias for the fixed income investment options like bonds and bank deposits that provide predictable cash flows. Further, data from the CMA also shows significant growth in AUM for collective investment schemes over the last one year,” said analysts at Sterling Capital in a fixed income note.
“All this market liquidity needs to be invested for growth and this ensures high subscriptions in primary debt auctions.”
The 25-year paper, which was initially brought to the market in September 2022, has 21.8 years to maturity and a coupon or fixed interest rate of 14.18 percent, while the 20-year bond that pays interest of 12.87 percent was first sold in March 2019, giving it a period to maturity of 13.2 years.
The longer dated bond attracted a larger volume of bids at Sh48.18 billion, of which Sh40.34 billion was accepted, at an average yield of 13.75 percent. With the demanded yield falling lower than the bond’s coupon, investors paid the CBK a premium price of Sh102.91 (excluding accrued interest) per bond unit of Sh100 in order to secure their paper.
On the 20-year bond, investors put up bids worth Sh23.36 billion, with the CBK taking up Sh20.24 billion. Unlike the longer bond, however, the yield of 13.26 percent on accepted bids was higher than the paper’s coupon of 12.87 percent, meaning that the investors paid a discounted price of Sh97.55 per unit of Sh100.
When investors ask for a return (yield) that is higher than a reopened bond’s actual coupon or interest rate, the CBK offers a discount on the bond’s price, in order to make up for the difference between what the investors demanded and what they are paid in annual interest.
On the other hand, when investors indicate they are willing to take a return that is lower than a bond’s coupon rate, they end up paying a premium to the CBK in order to secure the bond. This usually happens when the government reopens a high paying bond in a period of falling interest rates, which sees investors rush to secure the paper, even if it means buying it at a price higher than its face value.
