January 2026 Primary Auction – FXD1/2019/020 & FXD1/2022/025
On its first primary auction for 2026, the Government re-opened two long-term papers, FXD1/2019/020 (13.2-years, 12.873% coupon) and FXD1/2022/025 (21.8-years, 14.188% coupon), targeting KES 60 billion for budgetary support. We view the long-term issue to be a debt restructuring technique as the low 10.0% with-holding tax on each is expected to woo more investors.
The auction comes a head of a KES 59.11Bn coupon payouts due for January 2025, out of which KES 20.59Bn is due on this auction’s value payment date on 12th Jan 2026; while KES 38.52Bn is scheduled for payment on 19th Jan 2026.
Further, the auction comes after the government securing a total of KES 645.25Bn from bonds in the first half of the fiscal year 2025/26, representing a 117.5% performance against a 6-month budget target of KES 549.13Bn domestic borrowing. Bond maturities paid off in the same period stands at KES 494.62Bn, leaving a net borrowing of KES 150.62Bn.
T-Bills borrowing for the same period stands at KES 678.58Bn against maturities of KES 678.94Bn, a near zero new borrowing.
We anticipate a total oversubscription supported by a fairly liquid market, even as the market activity is expected to pick momentum towards mid-month of January 2025.
In view of this, we recommend the following bidding rates for your investing consideration:
[Graph in PDF]
FXD1/2019/20 has a holding of KES 83.35Bn as of 5th January 2026 with coupons scheduled for early April and October annually. The paper was last re-opened in November 2025. The paper recorded an average yield to maturities of 12.8263% and 12.9363% in the 2nd and 3rd last trading weeks of 2025, respectively.
The FXD1/2022/025 has an outstanding debt of KES 178.65Bn emerging as the largest normal paper in value and the seventh largest paper after six infrastructure papers leading with debts of above KES 170.00Bn. FXD1/2022/025 appears to be the most preferred paper for debt restructuring, having been re-opened five times in 2025 and having been issued the first in 2026, similar to that of January 2025.
The FXD1/2022/025 paper is currently trading at a yield to maturity (YTM) of 13.975% and 13.8050% as of the trades of 29th and 30th December 2025. Average traded YTM for December 2025 stood at 13.4598% with KES 19.23Bn from a YTM of 13.3419% in November 2025 where a total of KES 24.77Bn was exchanged.
FXD1/2022/025’s November 2025 re-opening accepted rate stood at 13.7460% with a cut-off point of 13.800% after receiving KES 82.14Bn with the government accepting KES 34.57Bn, see table below for more.
[Graph in PDF]
Primary Bonds Market Performance
Primary bonds have largely been oversubscribed in the last auctions of 2025, mainly supported by improved liquidity. December and November auctions were oversubscribed at KES 132.8% and 289.6% with KES 53.13Bn and KES 115.86Bn, respectively against a target of KES 40.00Bn.
The oversubscriptions were also supported by coupon and maturities payouts of KES 72.90Bn paid out in December 2025, and coupon payments of KES 80.28Bn that happened in November and December 2025 respectively.
We expect this auction to be rallied by the above coupon payouts of KES 59.11Bn due in Jan-2025. See below performances:
[Graph in PDF]
Secondary Bonds Market Performance
End of 2025 witnessed heavy secondary trading activities as investors rushed cash on capital gains made after the interest rates signaled signs of marginal upticks after recording some low levels.
A total of KES 230.43Bn was changed further supported by improved liquidity and reall0cations of funds from low earning facilities like bank deposits to government securities. This was as bank deposit rates fell sharply.
The re-opening of a high yielding papers, signals the current favorable cost of financing government operations in spite of some heavy rejections that follows aggressive bidding levels.
Find below, December’s and annual secondary market performance for 2025:
[Graph in PDF]
Yield Curve
In the last one month ending 31st December 2025, yield curve exhibited some downward and upward shifts in the short-and and the long-end in that order on reactions to primary re-openings.
The short-end between 1-year to the 6-th year shifted downwards on increased demand in the section as the market remain starved of short-term papers.
The long-end however shifted upwards on impact from the ongoing primary auction for the switch paper FXD1/2022/015 of 11.3-years to maturity and this note’s auction papers.
[Graph in PDF]
Interbank
Following the 9th interest rate cut of 25.0bps of the Central Bank Rate (CBR) from 9.25% to 9.00%, the interbank shed 23.2bps from 9.24% at the end of Nov-2025 to 9.09% by end of Dec-2025.
Improved liquidity has so far helped the interbank hover around 8.98% as liquidity demand weakens. By end of December 2025, liquidity demand dropped 75.1% from KES 23.27Bn to KES 5.80Mn, month on month. Average liquidity demand has shed 7.4% to KES 11.53Bn in the last one month supported by a general rise in liquidity.
Further improved liquidity condition has seen bank excess reserves expand 136.8% between 30th November and 31st December 2025 to defy the rise in government borrowings.
[Graph in PDF]
Treasury Bills
Improved liquidity and re-investments from the T-bill maturities continue to support oversubscriptions in the sector. In Dec-2025, T-Bills were oversubscribed at 126.5% or KES 151.80Bn against a total target of KES 120.00Bn, with the government accepting KES 138.37Bn or 91.1% of the subscribed amount.
The performance was mainly supported by re-investments from the KES 123.50Bn that matured in the month and new investments from rise in market liquidity as explained in the interbank.
Return on investments on T-bills seems to have settled at current levels especially on the 182-day papers which has stabilized at 7.800% for over a month now. Return on the 91- and 364 papers however continue declining marginally, recording a 5.2bps and 16.8bps drop between November and December 2025.
[Graph in PDF]
Currency
The Kenya shilling continue being stable to record a 0.6% gain in the last one month to KES 129.01 per US dollar, strongly supported by sufficient forex reserves and a rising export of goods especially tea, coffee and flowers.
Forex reserves rose 1.9% from USD 12.17Bn to USD 12.39Bn supported by the festive 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 for November 2025 dropped 11.5% to USD 388.30Mn from a high of USD 438.79Mn recorded in October 2025. Year on year, diaspora inflows dropped 8.3% from that of USD 423.25Mn of Nov-2024. Total inflows for the eleven months were up 2.3% from USD 4.50Bn to USD 4.60Bn.
The adoption of a 1.0% remittance tax by the US government on 1st January 2025 is expected to impact the diaspora inflows by about USD 50.00Mn or KES 6.50Bn annually.
[Graph in PDF]
Public Debt
In the one year ending 30th September 2025, total public debt stood at KES 12.05Trillion, a 11.7% growth of additional KES 1.26Tr. IN the nine months of 2025, Kenya’s debt rose by 10.3% from KES 10.93Tr to KES 12.05Tr.
Domestic debt grew faster at 21.1% or with additional KES 1,06Tr % from KES 5.61Tr in Sept-2024 to KES 6.66Tr in Sept-2025. This saw domestic debt contribution to total debt expand to 55.3% in Sept-2025 up from 51.9% in September 2025 and 53.7% by end of the year 2024.
External debt rose by 4.0% from KES 5.19Tr to KES 5.39Tr while its contribution contracted from 48.1% to 44.7% as government funding shifted to local borrowings.
