October 2026 | Pre-auction Note II | SDB1/2011/030 & FXD1/2026/030
The Government of Kenya, through the Central Bank, has reopened SDB1/2011/30Yrs (14.4 years to maturity, 12.000% coupon) and FXD1/2026/30Yrs (29.6 years to maturity, 12.500% coupon), targeting KES 50.00Bn to support budgetary financing needs.
October payouts amount to KES 102.87Bn, comprising KES 16.63Bn in maturities and KES 86.24Bn in coupon payments.
Notably, the Government’s near-term financing obligations remain manageable, with KES 56.95Bn of October’s scheduled payouts already settled on 5th and 12th October. This leaves only KES 45.92Bn in coupon payments due on 19th October, which could inject additional liquidity into the market.
In the month’s first auction, the Government received KES 80.56Bn in bids and accepted KES 57.51Bn, achieving a 115.0% performance rate against the KES 50.00Bn target and meeting 44.0% of the estimated monthly borrowing requirement of KES 130.68Bn.
This strong subscription builds on the trend seen in recent auctions, driven by abundant market liquidity and ongoing reinvestment of coupon and maturity payments, reflecting robust investor appetite for Government bonds.
FXD1/2026/30 (29.6 years to maturity) has an outstanding amount of KES 49.51Bn and pays coupons semi-annually in April and October. Despite its long tenor, the bond has continued to attract limited investor interest, a trend evident in both the August and September 2026 auctions, largely due to its relatively low coupon rate.
FXD1/2026/30 is being reopened for the third time, following its initial issuance in April 2026 and a subsequent reopening in July and September. In its most recent reopening, the bond was priced at a market-weighted average rate of 14.4684%, while the Government accepted bids at an average rate of 14.2355%.
SDB1/2011/030 has a holding of KES 57.45Bn despite being reopened several times since its first issue in 2011. On its last reopening in September 2026, the paper’s market-weighted average rate was 13.7991%, with the Government accepting a YTM of 13.6937%.
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Economic Update & Outlook
Inflationary pressures from higher food and energy prices are expected to persist through Q4 2026, keeping lending rates elevated. Ongoing geopolitical tensions and adverse weather conditions are likely to sustain pressure on global oil and food prices, while below-average harvests in Western Kenya are expected to keep domestic food inflation high.
Inflation has risen steadily from 4.3% in February to 6.8% in September 2026, and we expect it to average between 6.5% and 7.0% in Q4, remaining within the government target range of 5%± 2.5%.
In response, the MPC maintained the CBR at 8.75% on 7th October 2026, citing rising global food and energy prices but noting that inflation is expected to remain within the target range, supported by prudent monetary policy, government interventions, and exchange rate stability.
Despite this, persistent inflationary pressures could weigh on economic activity, as higher Government securities yields may attract funds away from the private sector and increase borrowing costs for businesses.
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Primary Market Performance – Bond Market
Primary bond auctions have generally remained oversubscribed, supported by improved market liquidity and the reinvestment of proceeds from coupon payments and maturing government securities.
September’s two auctions were oversubscribed by 124.7%, receiving KES 149.60Bn in bids. Of this, KES 97.92Bn was accepted, translating to an 81.6% performance against the KES 120.00Bn monthly target. Both auctions were separately oversubscribed; see the table below.
In October’s first primary auction, the government took up a total of KES 57.51Bn from a subscription amount of KES 80.56Bn, which translated to a 115.00% performance rate.
The strong performance of the auctions was supported by the anticipated payout of KES 102.87Bn due in October 2026, alongside fresh investments and reinvestment demand from institutional investors, particularly insurance companies and pension funds.
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Secondary Bonds Trading Performance
Continuous government bond reopening’s have significantly dampened activity in the secondary market, with turnover declining by 14.4% month-on-month to KES 276.75Bn from KES 323.15Bn.
The FXD1/2019/020, which was reopened during September’s second primary auction, emerged as the most actively traded bond for the month, recording KES 25.35Bn in turnover shortly after entering the secondary market as investors sought to lock in attractive capital gains. The IFB1/2021/21Yrs reopened in August 2026, ranked second, posting KES 21.85Bn in turnover.
Most of the month’s reopened papers, namely FXD3/2019/015, FXD1/2019/020, and FXD1/2026/030, featured among the top five most actively traded bonds, underscoring investors’ strong preference for recently reopened papers.
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Yield Curve
The yield curve has continued to exhibit mixed movements across different tenures, largely reflecting the impact of frequent bond reopenings throughout the year. These reopening’s have contributed to shifts in yield-to-maturity levels between pre- and post-auction periods.
For the current auction, however, we anticipate an upward adjustment in yields around the offered tenors of 14.4 years and 29.6 years to boost investor demand for the papers.
Nonetheless, this upward pressure is likely to be temporary, as trading-oriented investors are expected to exit after the auction, subsequently driving demand toward lower yields in pursuit of capital gains opportunities.
