February Bond Reopening Draws KSh 213bn in Bids as Govt Leans on Domestic Funding

Kenya’s Treasury pulled in KSh 213.74 billion in bids at its February 16 bond auction while accepting KSh 100.54 billion, a performance that looked robust on the surface but pointed to a deeper fiscal reality: this year’s budget is being financed primarily by domestic lenders while external funding remains slow.

• •The auction reopened two long bonds, a 15-year note due in 2034 and a 25-year note maturing in 2043.
• •Demand tilted decisively toward the shorter tenor, with the 15-year attracting KSh 133.79 billion in bids versus KSh 79.94 billion for the 25-year.
• •The bid-to-cover ratios of 2.44x and 1.75x respectively showed ample liquidity, but also reflected investors’ preference for mid-curve duration over ultra-long risk.

Treasury accepted bids at yields slightly below the market-weighted averages, a sign that it is trying to cap borrowing costs even as issuance volumes rise. The 15-year cleared at 12.18% against a market average of 12.39%, while the 25-year cleared at 13.36% versus 13.45%. Both priced above par, meaning investors paid a premium for fixed income exposure despite stretched supply.

The February result fits a clear pattern. Since July, Treasury has leaned heavily on local capital markets. Across 11 auctions to mid-February, it offered KSh 540.0 billion but accepted KSh 746.35 billion, lifting net domestic borrowing to KSh 626.42 billion after redemptions. In effect, the government has already taken in 138% of what it initially offered, indicating that domestic debt is doing the heavy lifting of budget execution.

Why it Matters

Kenya’s FY2025/26 deficit is budgeted at roughly 4.8% of GDP, with the official financing plan skewed about two-thirds domestic and one-third external. In practice, the external leg has lagged. Talks for a new IMF programme are still ongoing after the previous facility expired, and no fresh IMF disbursements have flowed into this year’s budget. Plans for a Eurobond or alternative external operations remain prospective rather than cash-in-hand.

The consequence is concentration risk at home. Heavy reliance on local borrowing tightens competition for bank liquidity, especially as private credit growth remains subdued. It also leaves fiscal financing more sensitive to shifts in domestic interest rates and market sentiment.

Revenue performance has compounded the problem. Tax collections have consistently trailed targets, forcing Treasury to close gaps with more borrowing rather than lower spending. Interest costs already consume a rising share of the budget, crowding out development outlays.

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FY2025/26 Treasury Bond Auctions to 16 Feb 2026 (KSh billions)