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Investors earn Sh176bn from Treasury 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.
Investors who sold their Treasury bonds on the secondary market at the Nairobi bourse made a profit of Sh176 billion after falling returns on new issuances triggered a jump in prices and demand for older, more lucrative papers.
The profits were nearly five times the Sh36.1 billion in earnings the secondary market made in 2024, underlining the dual impact of higher trading activity and prices.
The profit is the difference between the selling price of the bonds to other investors on the Nairobi Securities Exchange (NSE) and their face value, which is the amount the seller paid the government when purchasing a unit of the paper in the primary market Central Bank of Kenya (CBK).
Capital Markets Authority (CMA) data shows that investors traded a record Sh2.71 trillion worth of bonds at the NSE, with a face value of Sh2.53 trillion. In 2024, the bonds turnover stood at Sh1.5 trillion.
“Investors turned to the secondary market, hunting for favourable yields and capital gains, as interest rates on new bonds declined due to the Central Bank of Kenya’s easing cycle,” said Melodie Ndanu, a research analyst at Standard Investment Bank.
“Additionally, liquidity increased significantly in the year as the CBK pumped in cash through open market operations, coupled with the reduction of the cash reserve ratio for banks and the central bank rate cuts.”
There is an inverse relationship between bond prices at the NSE and yields in the secondary market, where an increase in one results in a fall in the other.
Bond interest rates in the market declined in line with CBK cuts on the benchmark rate, which fell from 13 percent to 9.0 percent between August 2024 and December 2025.
The falling bond rate made Investors reluctant to sell existing securities, which pay higher interest.
Those selling demanded a premium, which sparked a rally in the price of highly sought-after papers like the tax-free infrastructure bonds (IFBs) of 2023 and 2024.
Other ordinary bonds have a withholding tax of 10 percent on interest for tenors above five years, while those of a lower duration are taxed at 15 percent.
A 17-year IFB sold in March 2023 pays investors 14.4 percent, while a seven-year bond issued in June 2013 carries a coupon of 15.83 percent.
In November 2023, the CBK sold a 6.5-year IFB at 17.93 percent, followed by an 8.5-year paper in February 2024 at 18.76 percent.
These papers have been trading at premium prices of between Sh109 and Sh124 per bond unit of Sh100, effectively handing their holders a capital gain of eight to 24 percent on the face value of their bonds.
The highest premium is on the 8.5-year IFB, whose price this week stood at Sh123.65, followed by the 6.5-year IFB at Sh116.20.
For the other ordinary bonds, prices range from Sh99.90 to Sh109 per bond unit, meaning they are also offering sellers a premium despite their lower coupons of between 10 and 14.3 percent.
Investors have sought to lock in these papers due to the rate outlook pointing to even lower returns from new bond sales in the medium term.
For the investors who sold their bonds at the NSE, the profits represent a return of seven percent on their initial outlay.
Meanwhile, investors who held onto their bonds continued to earn annual interest, at rates of between 10 percent and 18.46 percent.
In 2024, the profits of Sh36 billion were equivalent to a return of 2.9 percent on the face value of the securities.
On returns, the bond market trailed the equities market at the NSE, where investor wealth grew 51.8 percent or Sh1 trillion to Sh2.94 trillion last year.
Profits from bond sales matched returns from Nairobi’s property market, where sales of homes posted a return of 7.7 percent. Return on land sales stood at 6.21 percent while rents contracted 2.5 percent.
Treasury bills paid investors between 7.7 percent and 11.4 percent last year, while interest returns on fixed cash deposits in banks declined to 7.17 percent in November from 10.05 percent in January 2025.
The CBK will hold its next monetary policy committee meeting on February 10, with a possibility of cutting the base rate for a 10th straight time in order to spur lending to the private sector.
A stable shilling-dollar exchange rate and inflation holding below the CBK’s preferred range of five percent plus or minus 2.5 percentage points also support further easing.
The bond market has also grown in popularity among investors over the past two years, with a marked increase in holdings of the securities by retail investors and fund managers.
This increased participation has fed into the demand for bonds in the secondary market, giving those holding high-priced papers an avenue to sell for a profit.
The vibrancy of the market is backed by the introduction of the CBK’s Dhow CSD digital bonds trading platform in 2023, which has made it easier to buy government securities.
Households now hold Sh438.3 billion or 6.4 percent of the government’s domestic debt, which stood at Sh6.85 trillion as of January 16. At the end of June 2025, they held Sh409.3 billion of the State’s domestic debt, CBK numbers show.
Foreign investors hold Sh315 billion of the debt, with non-financial companies and non-profit organisations holding Sh123.3 billion and Sh61.6 billion respectively.
Previously, these retail bond buyers were bundled together under one umbrella known as ‘other investors’, alongside self-help groups, private companies, individuals, saccos, religious and educational institutions. This group of investors collectively held Sh288 billion worth of government securities three years ago, illustrating the scale of growth in new bond purchases by non-institutional investors.
Commercial banks remain the biggest lenders to the government at Sh2.38 trillion, followed by pension funds at Sh1 trillion and insurance companies at Sh924.5 billion.
Government institutions, including parastatals, hold Sh500 billion worth of government debt.
