The value of bonds traded on the Nairobi bourse grew by 50 percent in the first two months of the year compared to the corresponding period last year, highlighting the rising demand for papers with high coupon rates as new auctions register lower interest rates.
Data from the stock exchange shows that bondholders traded Sh660.04 billion worth of the government securities in the period, comprising Sh276.23 billion in January and Sh381.81 billion in February.
Last year, the first two months of the year saw combined trades worth Sh440.18 billion.
Bond turnover in the whole of 2025 stood at Sh2.71 trillion, a record for the Nairobi Securities Exchange (NSE).
These bonds had a face value —the amount the seller paid when purchasing the paper in the primary market—of Sh2.53 trillion, meaning the sellers enjoyed a profit of Sh176 billion from their secondary market transactions.
The bonds market has grown in popularity among investors over the last two years, with a marked increase in holdings of the securities by retail investors and fund managers. This increased participation has fed into the demand for bonds in the secondary market, giving those holding high interest rate papers an avenue to sell for a profit.
The vibrancy of the market is backed by the introduction of the Central Bank of Kenya (CBK) Dhow CSD digital bonds trading platform in 2023, which has made it easier to buy government securities.
Investors holding older bonds that were issued at higher interest rates than those being sold currently have also turned to the secondary market to sell their paper at a premium, allowing them to extract a capital gain that can be reinvested in new papers or other high returning assets such as equities.
The most lucrative of these securities in the secondary market are the tax-free infrastructure bonds (IFBs) sold in 2023 and 2024, which pay annual interest of between 14.4 and 18.5 percent.
These papers are selling at prices of up to Sh128 per bond unit of Sh100, giving holders an incentive to sell their securities.
For the buyers in the secondary market, the expectation is that the higher interest rates will cover the price premium through the remaining life of the security.
There is an inverse relationship between bond prices and yields in the secondary market, where an increase in one results in a fall in the other.
This arises from the fact that bondholders are reluctant to sell existing holdings, which pay higher interest since they would earn less returns from new purchases in the market. They, therefore, demand a premium on price to sell their bonds.
In the last six months, the CBK has been reopening older, longer term bonds that offer coupons of between 11 and 14 percent.
The decline in yields on new bonds has tracked the 10 consecutive cuts in the CBK’s base rate, which now stands at 8.75 percent compared to 13 percent in August 2024.
A stable shilling-dollar exchange rate and inflation holding below the CBK’s preferred range of five percent plus or minus 2.5 percentage points also support further easing.
