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October 2026 | Pre-auction Note | FXD3/2019/015 & FXD1/2019/020
The Government reopened two papers, FXD3/2019/015 (7.8 years, 12.340% coupon) and FXD1/2019/020 (12.5 years, 12.873% coupon), seeking KES 50 billion (Bn) from the public for October’s budgetary support. The auction is scheduled for 30th September 2026, with payment due on 5th October 2026.
The auction comes ahead of KES 102.87Bn payouts due in October 2026, of which KES 16.63Bn and KES 86.24Bn are maturities and coupon payments, respectively, from the existing Government bonds.
Monthly domestic borrowing estimates stand at KES 130.68Bn, with the first two months of July and August 2026 recording a total of KES 463.84Bn, representing a 177.5% performance against the KES 261.36Bn target for the two months.
Further, the auction comes amid growing expectations of Central Bank rate hikes driven by rising inflation, with major global central banks already tightening benchmark interest rates.
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FXD3/2019/015 was last issued in the first auction of September 2026 (this month), where it was undersubscribed at 95.2% or KES 57.10Bn with the Government accepting KES 41.14Bn. The market priced it at a yield to maturity (YTM) of 12.829% while the Government accepted bids of 12.7631%.
The FXD3/2019/015 has a total outstanding debt of KES 161.14Bn, with coupon payments occurring in mid to late January and July each year.
FXD1/2019/020 has a holding of KES 209.81Bn, with coupon payouts in early April and October annually; the next coupon is scheduled for 5th October 2026, this auction’s value date.
With its next coupon date aligning with the 5 October 2026 auction settlement date, investors incur no accrued interest, thereby enhancing liquidity and positioning the bond as a key pricing benchmark for upcoming medium- to long-term issuances.
At its last auction on 16 Sept 2026, the FXD1/2019/020 was priced at 13.6799% by the market, while the Government accepted a price of 13.6105%. Since this auction, the paper has traded an average of 13.3767%.
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Economic Update & Outlook
As inflationary pressures on energy and food persist, we expect lending rates to trend higher in the last quarter of 2026 (Q4-2026). This is largely occasioned by ongoing geopolitical tensions that threaten oil supply, while floods and droughts are being witnessed in some key global regions.
Consequently, we expect these to negatively impact economic performance, including the local economy, and weigh down businesses as the return on investment in Government securities reverses upward.
With the ongoing low harvest from Kenya’s food basket, the western region, we expect Q4-2026 inflation to average 6.5%-6.9%. Inflation rose from 4.3% in February 2026 to 6.6% in August 2026, easing briefly in June before resuming its upward trend.
We expect inflation to remain within 6.5% to 6.9% through the rest of 2026, driven by drought-induced food price pressures in Western Kenya and persistent volatility in global oil markets, and some tax-related price reviews.
As such, we expect the Central Bank to raise the policy rate by 25.0bps from the current 8.75% to 9.00% in its next Monetary Policy Committee meeting scheduled for 7th October 2026.
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Primary Market Performance
Primary auctions largely remain oversubscribed, supported by a general rise in market liquidity and reinvestments of coupons and some Government bond maturities.
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.
The auctions’ performances were supported by KES 51.33Bn in coupon payouts, new investments, especially from insurance and pension funds, and surpluses from the heavy primary rejections of August’s infrastructure auction.
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Secondary Bonds
Provisional data points to a 27.9% decline in secondary trading activity for September 2026 to KES 231.69Bn from August’s high amount of KES 321.55Bn occasioned by August’s infrastructure papers.
The FXD1/2019/020, re-opened in September 2026’s second primary auction, emerged as the month’s top mover, trading KES 21.07Bn shortly after entering the secondary market as investors sought higher yields while locking in capital gains.
Most of the month’s top movers are the papers that were reopened recently, including the FXD1/2021/25 of June 2025 in second position, the IFB1/2021/21 reissued in August, among others. See the table below.
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Yield Curve
Constant primary reopenings continue to exhibit mixed movements and shifts across the yield curve, especially in pre- and post-auction yield-to-maturity rates.
Secondary trading yields tend to decline, especially on the long-end papers, where demand seems to have declined, with investors demanding better values from the secondary market, thus favouring the Government.
In this auction, however, we expect shifts around the issued tenures of 7.8 years and 12.65 years upward to boost investor appetite for the papers. This will, however, be short-lived as the trading investors will be exiting post the auction and demand lower yields to capitalise on the gains.
