Pre – Auction Note – IFB1/2019/016, IFB1/2021/018, IFB1/2021/021
In a fresh push to mobilize KES 150Bn, the National Treasury has reopened three infrastructure bonds: IFB1/2019/016, IFB1/2021/018, and IFB1/2021/021, offering coupons of 11.750%, 12.667%, and 12.737%, respectively. This is the first Infrastructure bond reopening of the year, with the last Infrastructure reopening being on 18th August 2025.
The reopening precedes KES 173.89Bn in payment falling due in August, comprising of KES 78.01Bn in principal repayments and KES 95.88Bn in coupon payments.
Liquidity conditions remained favorable in July, supported by easing geopolitical tensions and moderating inflation expectations following the resolution of oil supply constraints. As a result, the market witnessed significant subscription levels during the month, with bids worth KES 96.51Bn rejected, largely due to aggressive pricing by investors.
However, the recent breakdown of the US-Iran agreement, which had been signed in mid-June, has renewed global economic uncertainty, particularly with respect to the inflation outlook. This development, is likely to prompt investors to demand greater discounts ahead of the auction.
Despite elevated global uncertainty, abundant market liquidity and the tax-exempt nature of the infrastructure bond are expected to underpin strong investor demand, resulting in an oversubscribed auction. Consequently, investors are likely to bid aggressively to secure attractive yields while pricing in the risks arising from renewed tensions in the Middle East.
Given the above factors we recommend the following rates for your bidding purposes:
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Economic Update & Outlook
Ongoing concerns surrounding the deterioration of the US-Iran agreement reached in mid-June have contributed to elevated global economic uncertainty, especially regarding inflation expectations.
Local inflation rose to 6.5% in July 2026, up marginally from 6.4% in June 2026, largely driven by higher food and pump prices stemming from recent spikes in global fuel prices.
Food prices rose by 9.0% year-on-year, driven by higher prices for tomatoes, Sukuma wiki, beef with bone, and sugar, which increased by 33.7%, 26.8%, 10.7%, and 10.4%, respectively.
Transport prices rose by 15.6% year-on-year, driven by higher fuel costs, with diesel and petrol prices increasing by 29.7% and 14.7%, respectively. Increased energy costs continued to pressure transport expenses. Electricity, Gas, and Other Fuels costs rose by 3.2% year-on-year, reflecting upward adjustments in electricity tariffs and broader energy costs.
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Secondary Bonds Trading Performance
Escalation in geopolitics saw secondary trading activity drop by one-fifth, from 4,955 deals to 3,924, pulling down the month’s turnover by 18.3%, from KES 233.33Bn to KES 190.61Bn. This was largely driven by the breakdown of the US-Iran agreement signed in mid-June, which heightened global economic uncertainty, particularly with regard to the inflation outlook.
The volatility, however, eased in the last week of July as peace negotiations resumed, but had little impact on total traded value as new factors emerged, including the reopening of Infrastructure papers for the August auction.
FXD1/2021/25, re-opened in June 2026, retained its top-mover position by doubling its value traded from KES 15.92Bn to KES 31.00Bn, while its YTM fell by 21.9bps to 13.8810%. This was 98.3 bps below the 14.8636% accepted at June’s second auction, delivering strong value to investors who secured the bond at issuance.
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Primary Market Performance – Bond Market
Prevailing high liquidity saw an overwhelming oversubscription of KES 230.40 Bn against a Government target of KES 110Bn from two auctions. A total of KES 133.88Bn was accepted, representing a 58.1% acceptance rate and 121.7% performance rate against the target.
The heavy rejections amounting to KES 96.51Bn were mainly occasioned by aggressive investor bidding and low Government obligation of KES 64.67Bn towards coupon payouts due in the month.
The oversubscriptions were partly supported by reinvestments from the above KES 64.67Bn coupon payouts and new savings from both pensions, insurance, fund managers, banks, and among other investors.
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Yield Curve
The Government’s frequent primary market auctions have continued to influence yield curve dynamics, resulting in mixed movements across maturities, with yields trending in different directions.
The short end of the curve has seen an upward shift, largely driven by the primary auction of the IFB1/2019/016 years as investor push for better discounts ahead of the primary auction.
The long end of the curve, particularly the 10-14 year and 18–20-year segments, shifted downward following the entry of July’s auction papers, FXD1/2019/20 and FXD1/2022/25, into secondary trading as investors sought capital gains
