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Retail investors pile Sh1.4trn into bonds, units trust funds
Demand for bonds remains high, with the August sale of two reopened infrastructure bonds raising a record Sh274.8 billion against a target of Sh140 billion.
Retail investors, including individuals, private companies and self-help groups, have piled a record Sh1.44 trillion in government bonds and unit trusts, underscoring the growing flight to passive investments as businesses struggle to survive amid high taxes and reduced consumer purchasing power.
The combined amount of cash held in these two investment classes more than doubled over the past two years, rising from Sh580.45 billion in August 2023.
This coincided with a period of relatively high interest rates from government papers of up to 18.5 percent that made them an attractive option when other assets were offering single-digit returns.
Bonds and unit trusts, notably money market funds, also offered a safe haven at a time of political uncertainty in the wake of the post-election demonstrations of 2023 and the youth-led protests in June 2024 and June 2025.
This saw entrepreneurs pour billions of shillings into money market funds, stamping out enthusiasm for riskier ventures like starting a business, which present an opportunity to ease Kenya’s growing unemployment.
For businesses that have delayed investment decisions, the fixed income market has provided a platform to protect the value of idle capital at minimal risk.
Demand for bonds remains high, with the August sale of two reopened infrastructure bonds raising a record Sh274.8 billion against a target of Sh140 billion.
“In times of economic uncertainty, we want our money to be secure and easily accessible. Bonds and money market provide that. The real economy will starve, but individuals do not think of the whole, but rather about themselves,” said Prof X.N. Iraki, an economics lecturer at the University of Nairobi.
“This shift to bonds and money market funds could also be a lagged effect of last year’s events like Gen-Z protests and political noise that has characterised our economy.”
In 2024, Kenya’s GDP growth slowed to 4.7 percent from 5.7 percent in 2023, attributed to muted growth in key sectors such as agriculture, construction and manufacturing amid constrained access to credit and falling consumer demand.
This also reflected reduced investment in these job-rich sectors, with a significant portion of capital in the economy instead finding a home in government securities.
Since August 2023, the volume of government domestic debt under retail investors has doubled from Sh404.5 billion to Sh844.3 billion.
In government debt reporting, these retail investors are classified as ‘other investors’ and include savings and credit cooperative societies (saccos), listed and private companies, self-help groups, educational institutions, religious institutions, and individuals.
Their holdings of bonds and Treasury bills now account for 13.08 percent of government domestic debt, which stood at Sh6.45 trillion as at August 22. Two years ago, they held 8.45 percent of the debt, which stood at Sh4.79 trillion at the time.
In the unit trust segment, the latest data from the Capital Markets Authority (CMA) shows that the assets under management (AUM) stood at Sh596.34 billion as at June 2025, having grown by 134 percent from Sh254.1 billion in June 2024, and by 239 percent from Sh176 billion in June 2023.
The sharp growth has been attributed by the CMA to aggressive marketing efforts by unit trusts, which have raised awareness of professional investment services among individuals.
As a result, the 40 active collective investment schemes had attracted 2.46 million investors by June 2025, up from 950,020 in June 2023.
A growing share of the unit trust AUM is held in foreign currency-dominated funds, indicating that investors are also using the collective schemes as a hedge against local currency volatility for their savings. The value of these foreign currency-denominated funds stood at Sh62.1 billion in June, up from Sh23.8 billion in June 2024.
The bulk of unit trust assets (Sh372.8 billion/63 percent) is, however, held in money market funds, which primarily invest in short-term government securities and fixed cash deposits in banks.
The money market funds were thus able to market themselves on the back of high interest rates on government securities in 2023 and 2024.
The rates peaked at 18.46 percent in February 2024 for tax-free infrastructure bonds, while Treasury bills saw rates go up to 16.99 percent for the one-year and six-month papers in July 2024.
These higher rates were primarily driven by monetary policy tightening by the Central Bank of Kenya (CBK) between September 2022 and July 2024 as it tackled a weakening shilling and high inflation. Investor jitters about the Treasury’s ability to settle a maturing $2 billion (Sh258.5 billion) Eurobond that was falling due in June 2024 also deepened the interest rate pressure on government debt.
The government, however, bought back a $1.5 billion (Sh194 billion) portion of the Eurobond in February 2024 to calm the jitters and pull the shilling back from an all-time low of Sh161 to the dollar to the present level of Sh129.
With inflation also falling below the five percent mid-point, the CBK has been able to cut its base rate to 9.5 percent from 13 percent in August 2024, bringing down bond yields to about 12-14 percent, while T-bill rates have halved to between 7.99 percent and 9.5 percent.
