Investors have shown an appetite for long-term Treasury bonds as they chase securities that are still paying high returns amid the recent fall in interest rates.
This month, the Central Bank of Kenya (CBK) held two separate auctions in which it reopened a total of four papers: a pair of 15-year bonds with 8.7 years and 11.4 years to maturity, a 20-year bond with seven years to maturity, and a 25-year bond that has 21.9 years until it falls due.
These bonds are paying investors interest at rates of between 12 and 14.2 percent, which is significantly higher than the 7.8 percent to 9.4 percent available on short-term Treasury bills.
Investors offered the government a cumulative Sh208.75 billion in the two issuances, with the CBK taking up just over half of this amount at Sh107.6 billion.
The maturity profile of these bonds, according to analysts, would have appealed to buyers who normally have a long investment profile such as pension funds, but retail investors have also bought in as returns from other assets such as unit trusts and fixed bank deposits trend lower.
At the first of two auctions held on November 5, targeting Sh40 billion, the CBK received bids of Sh57.6 billion for the first of the 15-year papers with 11.4 years to run, accepting Sh33.3 billion. The government's fiscal agent received bids of Sh35.3 billion for the 20-year paper and accepted Sh19.5 billion.
In the second auction on November 19, the 25-year bond realised bids worth Sh82.14 billion, with the CBK accepting Sh34.6 billion, while the second 15-year bond had bids of Sh33.7 billion and acceptance of Sh20.2 billion.
“The results of this auction (of November 19) only emphasise the importance assigned by investors to higher long-term return especially in an environment of declining interest rates. The 25-year has the longest tenor on the NSE with 21.9 years to maturity and the 14.18 percent is attractive to investors with long-term investment horizons like pension funds,” said analysts at Sterling Capital in a note.
The general decline in interest rates has followed the easing actions of the CBK’s monetary policy committee, which has cut rates in its last eight meetings held since August 2024.
The Central Bank Rate (CBR) benchmark currently stands at 9.25 percent, having been cut by 0.25 percentage points in the latest meeting on October 7.
The CBR stood at 13 percent before the current easing cycle started in August 2024.
For investors, the lower base rate has reduced returns on fixed-income investments whose pricing is linked to government securities.
The average interest rate on fixed deposits in banks, for example, fell to 7.63 percent in September 2025, from 11.24 percent in September 2024, as lenders adjusted the returns downwards to protect their margins while also cutting the interest charged on loans.
Unit trust providers have also cut the annualised returns on their money market funds, which now range from 4.9 percent to 12.2 percent, compared to 11 percent to 18.1 percent in November 2024.
The money market funds are primarily invested in short-term government securities and fixed cash deposits. The funds have seen heightened investor demand as more Kenyans seek to invest in the formal markets through professional fund managers.
As a result, the assets under management in collective investment schemes climbed to Sh596.3 billion by June 2025, up from Sh254.1 billion in June 2024 and Sh176 billion in June 2023.
