The value of bonds traded at the Nairobi securities Exchange (NSE) grew 73.5 percent to Sh2.03 trillion in the nine months to September, highlighting increased participation in the segment by retail investors.
This marks the first time that the turnover in bonds has touched the Sh2 trillion mark in a calendar year, with the market now surpassing the 2024 full year trades total of Sh1.54 trillion, which was a record annual total for the segment.
The number of investors buying bonds in the primary market has grown since June 2023 when the Central Bank of Kenya (CBK) introduced its DhowCSD platform that has made it possible for investors to purchase securities electronically.
Introduction of the platform coincided with a period of high interest rates—that peaked at 18.46 percent on an 8.5-year infrastructure bond (IFB) sold in February 2024—which increased attractiveness of bonds as an investment and savings option for individuals and corporates.
Households have for instance piled Sh434.5 billion in bonds, raising their holdings at a time when the stock of outstanding IFBs has risen to Sh2.2 trillion, up from Sh1.11 trillion in December 2022. In the period, the total volume of Treasury bonds in issue has gone up from Sh3.71 trillion to Sh5.37 trillion.
Analysts say bondholders, including retail buyers who came in through the digital platform, are now cashing in on their paper in the secondary market, where prices have gone up as rates on new issuances continue to fall in line with the CBK rate cuts.
“We are now seeing higher liquidity and activity on the smaller trade lots of between Sh50,000 and Sh50 million in the secondary market,” said AIB-AXYS Africa senior associate for debt and equity Kenneth Minjire.
There is an inverse relationship between bond prices and yields in the secondary market, where an increase in one results in a fall in the other.
When rates on new issuances in the market are going down, investors are reluctant to sell existing holdings (which pay higher interest) since they would earn less returns from new purchases in the market. They, therefore, demand a premium on price if they are to sell their bonds.
The IFBs sold in 2023 and 2024 are now trading at premium prices of between Sh108 and Sh121 per bond unit of Sh100, effectively handing their holders a capital gain of eight to 21 percent on the face value of their bonds.
The highest premium is on the 8.5-year IFB, which traded at Sh121.11 yesterday, followed by a 6.5-year IFB sold in 2023 at a coupon of 17.93 percent, which is trading at Sh110.90.
The resulting higher turnover in the market is now expected to translate to higher earnings for stockbrokers and investment banks who facilitate the trades for investors.
Stockbrokers normally charge a commission of 0.03 percent per bond trade and between 1.5 and 1.8 percent for equities, with the NSE and the Capital Markets Authority (CMA) also taking a cut from these commissions.
They will look forward to higher earnings from the bonds segment, helping make up for reduced earnings from equities trades, which remain well below the peaks of more than Sh200 billion seen a decade ago.
In the half year to June 2025, stockbrokers reported a 156 percent rise in their collective half-year net profits to Sh1.1 billion. Brokerage commissions charged on bonds and equities trades rose by 49 percent to Sh1.46 billion, from Sh981 million in the first half of 2024.
Should the market activity levels be sustained in the second half of the year, the stockbrokers and investment banks will be on track to rake in their highest commissions since 2015, when they netted Sh3.1 billion.
The market intermediaries are coming from a lean decade in which their profits tumbled as the market went into a prolonged bear run which depressed traded turnover.
