First Primary Auction
(Fiscal Year 2025/26)
– FXD1/2018/20 FXD1/2018/25
The National Treasury through Central Bank of Kenya re-opened two papers, FXD1/2018/20 (12.8-years) of 13.20% coupon and FXD1/2018/25 (18-years) of 13.40% coupon, seeking KES 50 billion from the public for budgetary support. The papers attract a with-holding tax of 10.0% each.
The papers have slightly better returns compared to those issued at the close of the last fiscal year, in a move seen to woo more funds from investors. This is even as the government braces itself for August’s high liquidity demand projected at KES 181.66Bn on one bond maturity and coupon payouts. July government demand stands at KES 46.70Bn.
We expect the auction to attract more funds from insurance firms and pension funds owing to their long-term nature who will push for better discounts. This is even as interest rates generally come down as informed by the sustained official interest rate cuts by the Central Bank monetary policy committee.
We forecast heavy uptake by the government despite a low liquidity demand of KES 46.70Bn due in the July 2025. Part of this demand, KES 20.59Bn is due on 14th July while KES 26.11Bn will be required on 21st July 2025.
In view of this, we recommend the following bidding rates for your consideration:
[Graph in pdf]
FXD1/2018/20 (12.8-years) has an outstanding amount of KES 115.26Bn whose coupons happen in mid-March and Mid- September annually. Its next coupon is due on 17th September 2025. The paper traded at a yield to maturity rate 12.945% in the first week of July and 13.0941% in the last week of June 2025.
FXD1/2018/25 (18.0-years) has a holding amount of KES 129.57Bn with next coupons happening in mid-December and mid-June annually respectively. Its implied yield stands at 12.969% while trading at yield to maturity rates of 13.758% in the first week of July and 13.3147% in the last week of June 2025. The paper was last re-opened in March 205, where the average market rate was 13.9384% while the accepted rate was 13.8033%.
Overall, we expect a total oversubscription on the two papers with a fairly aggressive bidding to compensate for long-term returns. We further expect a heavy uptake beyond the target in preparation for the August 2025 heavy liquidity demand.
Our rate recommendations are also based on the last June 2025 auction which saw accepted rates remain fairly high. As investors demanded for better discounts for nearly similar long-term papers.
[Graph in pdf]
Macro-Economic Update
The local economy recorded a 4.9% growth in Q1-2025, supported by rebounds in agriculture, whole sale, construction & mining and retail and taxes on products.
- Agriculture reported a 6.0% growth compared to 5.6% in Q1-2025 supported by improved production following a favorable rainfall witnessed in the period.
- Private sector credit continue improving as evidenced by the rising liquidity in the market. In May 2025, private sector credit recorded 2.0% growth in relation to a 0.2% growth in March 2025 and a contraction of 2.9% in January 2025.
The private sector however, face a myriad of challenges posed by the recent protests that impact the general health of businesses. According to the Stanbic Bank Kenya’s purchasing manager’s index (PMI), business conditions deteriorated in the months of May and June resulting to declines in the PMI index from 52.0 points in April 2025 to 49.6 and to 48.6 points in June 2025.
Kenya inflation remain contained below the government mid-point range of 5±2.5%, to stabilize at 3.8% in both May and June 2025. The low inflation are largely attributed to low internationals oil prices, stable exchange rate and a rise in the food supply especially, short-term crops.
[Graph in pdf]
Bonds Market Performance
Secondary bonds trading continue being active with heavy demand being on the on the run papers, as investors rush to cash in from these respective papers immediately after the au0ction.
June 2025 secondary trading activity declined 11.1% to trade KES 199.10Bn compared to KES 223.94Bn, with heavy activity happening on the above on the run papers, see below table.
[Graph in pdf]
In the primary auctions, oversubscriptions persist, promoted by re-investments from either coupon payouts or maturities supported by new investments from various sectors.
In June 2025 primary auction, a total of KES 101.36Bn was subscribed with the government accepting KES 71.64Bn, representing a 143.3% performance against the KES 50 billion target.
[Graph in pdf]
Treasury Bills
Improved liquidity saw oversubscriptions persist, with the last auction of June 2025 KES 215.37Bn against a KES120.00 billion target. A total of KES 156.74BN was accepted to account for 72.8% of the amount received and receiving and a 130.6% performance against target.
The performance was largely supported by I proved market liquidity which we expect to trickle I to this auction, in as much as it’s hard for short-term funds to be shifted to long-term investments.
Investors’ preference remain on the 364-day paper, which received KES 141.81Bn or 65.8% of the subscribed amount, of which KES 087.34Bn was accepted to account for 55.7% of the accepted amount.
Return on investments remain on a downhill, however at marginal declines compared to the last few months.
