The Central Bank of Kenya (CBK) rejected Sh24.7 billion investor bids in the April Treasury bond sale that closed on Wednesday, taking advantage of the Treasury running ahead of its domestic borrowing target to sift out expensive offers.
Investors offered Sh74.89 billion against the advertised target of Sh40 billion, with the CBK taking up Sh50.19 billion.
The bond, which was in the market between March 23 and April 1, comprised a 15-year paper first issued in 2020 at an annual interest rate of 12.756 percent, and a 25-year bond that was brought to market in 2018, at an annual interest rate of 13.4 percent.
The 15-year paper attracted Sh41.42 billion bids, out of which Sh36.49 billion was accepted, while the offers on the 25-year paper amounted to Sh33.46 billion, with Sh13.7 billion taken up by the CBK.
Analysts at Sterling Capital estimate that the Treasury has raised about 80 percent of its budgeted net domestic borrowing target of Sh613.5 billion, affording the CBK the luxury of rejecting bids it deems expensive in bond sales.
This target is however expected to be raised to about Sh900 billion in the upcoming 2025/2026 Supplementary Budget I, which is before Parliament for approval.
The analysts also pointed to the recent successful issuance of the February 2026 Eurobond, which has reduced the pressure on the domestic debt market to fiancé the government’s Sh910 billion budget hole.
“Interest rates have been on a downward trend following successive Central Bank Rate (CBR) cuts and this has resulted in a decline in domestic debt interest rates across the yield curve especially on the short-end,” said the analysts in a note on the bond result.
“By accepting aggressive bids for longer debt, the CBK will therefore be effectively pushing the yield curve on the long-end upward, a scenario that won’t make sense in an environment of declining interest rates.”
Successful bidders ended up paying a premium on the price of the bonds to secure the papers, as buyers competed to have their bids accepted by the CBK.
On the 15-year bond, the net price per bond unit of Sh100 settled at Sh103—meaning that an investor was paying a premium of Sh3 for each unit— while the net price on the 25-year bond was Sh102.76, resulting in a premium of Sh2.76 per unit.
Ideally, a unit of a bond is priced at Sh100, with investors getting a return from the paper’s fixed interest rate. However, when there is a scramble for reopened bonds which pay a higher return compared to fresh paper, investors can pay above the Sh100 to secure the papers.
Alternatively, when they are asking for a return that is higher than what the government is offering, the CBK is forced to give them a discount on the Sh100 unit price in order to secure buyers for the bond and compensate for the lower interest rate.
As interest rates trend lower and investors hunt for papers that offer relatively high returns, the CBK has been opting to reissue medium to long term bonds in order to lengthen the maturity profit of domestic debt, aware that there will be high demand despite the duration risk tied to such papers for investors.
The CBR currently stands at 8.75 percent after the most recent cut of 0.25 percentage points in February, having come down from 13 percent in August 2024.
Usually, long term securities such as the reopened 25-year papers are preferred by institutional investors such as pension funds, while banks and retail investors go for shorter dated papers including Treasury bills.
