Central Bank of Kenya (CBK) raised KSh 36.59 billion from its second bond reopening in May, missing its KSh 50 billion target after the offer achieved a 94.32% subscription rate.
Key Highlights:
- The auction marked the first undersubscribed bond reopening since September 2025, when the SDB1/2011/030 issue attracted only KSh 8.1 billion against a KSh 20 billion target.
- The weaker demand follows an aggressive borrowing streak by the apex bank, including a KSh 94.04 billion triple-tranche auction on 6 May and a KSh 10 billion switch auction on 18 May.
- Combined May borrowing operations worth KSh 140 billion now stand as the largest monthly domestic fundraising programme of FY2025/26, with softer uptake hinting at growing market fatigue.
The reopening featured two Treasury bonds:
- FXD3/2019/015 with 8.3 years remaining to maturity
- FXD1/2021/020 with 15.3 years remaining
The shorter-dated paper received KSh 20.64 billion in bids, of which KSh 14.43 billion was accepted, while the longer tenor bond attracted KSh 26.52 billion in bids and saw KSh 22.17 billion accepted. Overall bids totalled KSh 47.16 billion.
Both bonds cleared above par value. The FXD3/2019/015 settled at an average accepted yield of 12.97%, slightly above its 12.34% coupon rate, while the FXD1/2021/020 cleared at 13.74%, above its 13.444% coupon. Investors showed stronger appetite for the longer-dated bond, which accounted for 56% of total bids and 61% of accepted allocations.
After accounting for KSh 10.25 billion in maturities, net new borrowing from the auction stood at KSh 26.34 billion.
Borrowing Pressure Intensifies
Since July 2025, Kenya has conducted 16 bond auctions that collectively attracted KSh 1.76 trillion in bids. Of this, CBK accepted KSh 1.08 trillion while rejecting more than KSh 685 billion in an effort to contain yields below prevailing market rates.
Net domestic borrowing has now reached KSh 891.02 billion, surpassing the revised FY2025/26 financing target of KSh 885.9 billion by KSh 5.12 billion, even before factoring in Treasury bill issuance. The original borrowing target of KSh 635.5 billion had already been exceeded earlier in the fiscal year before supplementary estimates added an extra KSh 250.4 billion amid revenue underperformance and higher government spending.
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The government’s debt switch programme has also slowed considerably. While January and March operations were heavily oversubscribed at 132% and 148% respectively, April and May failed to meet targets, recording subscription rates of 12.8% and 76.1%.
FY2026/27 Outlook
Pressure on public finances is expected to persist into the next fiscal year. The budget tabled on 30 April projects domestic interest payments at KSh 986.7 billion, significantly higher than the education allocation of KSh 668.3 billion.
The government plans to borrow KSh 890.4 billion locally in FY2026/27, while external borrowing conditions remain complicated by geopolitical tensions in the Middle East, which have pushed global oil prices from roughly US$63 to US$100 per barrel since February.
Treasury has also excluded funding from the International Monetary Fund in the upcoming budget after negotiations over a successor programme reportedly stalled due to disagreements surrounding securitised revenue streams. The IMF estimates Kenya’s debt-to-GDP ratio will hit 71.6% in 2026, well above the legal target of 55% expected by 2028.
CBK has already indicated that additional bond issuances are planned for June, with auction details expected later.
