December 2025 Pre-auction Note – Re-opened SDB1/2011/030 & FXD1/2021/025
The National Treasury through CBK re-opened two papers, SDB1/2011/030 (15.2-years, 12.000% coupon) and FXD1/2021/025 (20.4-years, 13.9240% coupon) for December’s primary auction seeking KES 40 billion from the public for budgetary support.
The auction and value payment dates are set for 3rd and 8th December 2025, respectively. The auction comes early following the start of the festive season that has already kicked off. This is even as domestic debt stands a head of target at 140% of the four-month target ending October 2025. Further, the government focus has been skewed to the medium and long-term papers while signaling a preference on long-term papers as a debt management measure to ease short-term liquidity pressures and provide room for some developments.
We expect the auction to be fairly oversubscribed supported by improved market liquidity evidenced by the recent heavy rejections after oversubscriptions.
The oversubscription will further be supported by a low amount offer of KES 40.00Bn against KES 72.90Bn payouts due in December 2025, out of which KES 25.20Bn is maturity and KES 47.70Bn are coupon payouts. A total of KES 44.92Bn will be paid out on 8th December 2025, this auction’s value date, including the KES 25.20Bn maturity.
In view of this, we recommend the following bids for your bidding consideration:
[Graph in PDF]
The SDB1/2011/030 has a coupon of 12.000% paid in February and August annually. The paper was last re-issued in September 2025 where it was undersubscribed with only KES 8.07Bn, with the government accepting only KES 2.40Bn to account for a 12.0% performance rate. Its market weighted average rate was 14.3709% whereas the government accepted bids of 13.9636% and below.
We still expect an undersubscription on the SDB1/2011/030 largely on its low coupon despite an anticipated high discount.
The FXD1/2021/025 has a total outstanding of KES 90.49Bn with a 13.924% coupon paid in May and November annually. The paper was last re-opened in May 2022.
[Graph in PDF]
Primary Bonds Market Performance
Primary bonds auctions have largely been oversubscribed since May 2025 supported by improving liquidity in the market. This is even as returns on bank deposits narrow faster pushing for some cash transfers to other high return assets including the government securities.
November’s two auctions were oversubscribed at 282.3% and 289.6% after receiving a total of KES 92.91Bn and KES 115.86Bn against targets of KES 40.00Bn for the first and second separate auctions, respectively.
The oversubscriptions were also supported by coupon payouts of KES 80.28Bn paid in the month plus other overflows especially from insurances, pension funds and banks.
In this auction we expect oversubscriptions to persist supported by the above improved liquidity and reinvestments from coupon and maturity bond payouts.
The buyback auction for FXD1/2023/003 maturing on 11th May 2026, saw a total of KES 20.08Bn injected back to the market which we view helped cool liquidity demand and is expected to come in handy in this auction.
[Graph in PDF]
Secondary Bonds Market Performance
Secondary bond market continues remaining active driven by heavy rejections in the primary occasioned by aggressive biddings. This is as the government pushes for a faster transmission of the rate cuts while investors push for higher discounts.
This leaves the re-opened papers to rally the market with the fact that some of them were of short tenures.
In this auction, we expect the same movement to happen as investors push to obtain the paper at higher rates in the primary.
[Graph in PDF]
Yield Curve
Primary re-openings continue to ignite mixed movements in the yield curve especially before and immediately after the primary auction.
The short-end of the yield curve shifted upwards on a longer effect of the primary auction which we anticipate to shift downwards. This is even as the short-end rates appear to have hit the bottom as reflected by the marginal declines in the 1-year paper.
The middle curve shifted downwards all the way from the 7-year paper to the 19th year papers largely on impacts from November’s re-opened papers (FXD1/2012/020-7.0yrs, FXD1/2022/015-(11.4-yrs), FXD3/2019/015-8.7YRS, fxd1/2021/025. The long-end of 21-years and 22-years shifted up on impact from this auction for FXD1/2021/25 paper.
[Graph in PDF]
Interbank
Interbank rate continues to track the Central Bank rate, to trade at 9.2475% as of the last trading day of November in relation to 9.2430% traded on the last trading day of October. Last one month average inter bank averages at 9.2421% compared to 9.3524% traded in October 2025.
This was as liquidity demand edged down towards the end of November 2025 greatly supported by the above payouts including the buyback payouts. As such, Bank excess reserves dropped by over half from KES 17.20Bn to KES 7.60Bn.
In the rest of December, we expect the interbank to edge downwards on the forecasted rate cut of about 25.0bps from 9.25% to 9.00%.
[Graph in PDF]
Treasury Bills
Improved market liquidity is also present in the T-Bills space resulting in heavy oversubscriptions in spite of the narrowing returns in the sector. The oversubscriptions majorly emanate from maturity re-investments. A total of KES 138.07Bn was subscribed while the government accepted KES 137.92Bn, to represent a 143.7% performance against target.
Market focus remains on the 364-day paper in what is viewed to be its relatively higher returns of 9.3759% as per the first auction of December 2025.
Returns on investments across the three papers remained stable in the first auction of December in what signals that the rates have hit their minimum levels. We however project an additional rate cut which will lower the returns if implemented by the regulator.
[Graph in PDF]
Currency
The shilling has lost 0.4%, 1.0% and 0.6% in the last one month against the US dollar, British pound and the Euro to trade at KES 129.82, KES 171.83 and KES 150.47 respectively. The weakening of the shilling is largely attributed by the increased public debt exposure which currently stands at over 67% of GDP against a 55% target.
Forex reserves shed 2.0% in the last one month from USD 12,194Mn to USD 11,951Mn, enough for 5.2-months of import cover. The decline follows coupon payouts for the May 2032 paper of USD 1.20Bn.
Forex remittances were 4.6% up to USD 437.20Mn in October 2025 from USD 419.63Mn in September 2025. This saw the ten-months remittances up 3.3% from USD 4.07Bn to USD 4.21Bn with 58.2% or USD 2.45Bn coming from the USA.
[Graph in PDF]
Economic Update
November inflation eased marginally to 4.5% supported by low food prices especially maize. Sifted maize flour price dropped 3.2% from KES 148.79 in October 2025 to KES 143.96 per 2Kg packet.
Pump prices however, has stabilized at KES 185.89, KES 172.64 and KES 155.96 per litre as at end of November when compared to October 2025.
The rate cut transmission continues to take effect evidenced by a rising private sector credit which grew by 5% as of September 2025. We forecast an additional 25.0bps rate cut on the official base lending rate from 9.25% to 9.0% to push for economic growth through affordable credit.
[Graph in PDF]
Government Budget Performance
Revenue estimates for the first four months of 2025 hit KES 1,513.11Bn, a 102.4% performance against a four-month target of KES 1,477.86Bn.
Tax contributed KES 736.28Bn 0r 48.7% of the revenue followed closely by borrowings with KES 730.25Bn or 48.3% of the target revenue for the period. Tax and borrowings contributed 96.9% of the total revenue collected.
Domestic borrowing surpassed the four-month target at 140.4% or KES 513.84Bn as external borrowings also exceeded target at 113.9% or KES 216.40Bn.
[Graph in PDF]
Public Debt
Provisional statistics from the Central Bank of Kenya point Kenya’s debt at KES 11.97 trillion as at end of August 2025, reflecting an 11.5% surge from that of KES 10.73Tr reported in a similar period in 2024.
Domestic debt rose faster at 18.1% year on year from KES 5.56Tr to KES 6.56Tr while external debt rose at 4.4% from KES 5.18Tr to KES 5.40Tr by end of August 2025.
