Kenya’s August 2025 infrastructure bond auction marked a significant moment in domestic debt management. The Central Bank of Kenya (CBK) reopened two long-tenor infrastructure bonds—IFB1/2018/015 (15-year) and IFB1/2022/019 (19-year)—to support development financing.
The auction attracted KShs 323 billion in bids against a target of KShs 90 billion, with only KShs 95 billion accepted. This 29.4% acceptance rate reflects CBK’s commitment to maintaining a low-interest rate environment and managing liquidity prudently.
The oversubscription demonstrates strong investor confidence in Kenya’s fiscal and monetary policy framework.
Infrastructure bonds offer a sustainable avenue for financing development projects while reducing reliance on external debt.
The strong demand for infrastructure bonds was driven by high nominal yields, tax exemption, and expectations of continued monetary easing. The IFB1/2018/015 was priced at 13.0%, while IFB1/2022/019 yielded 14.0%. These rates were higher than those recorded during previous reopenings, and significantly more attractive than other fixed-income instruments.
Given their tax-free status, the effective yields were 14.4% and 15.6% respectively. With inflation at 4.1% in July 2025, real returns stood at 8.9% for the 15-year bond and 9.9% for the 19-year bond—making them highly appealing to institutional investors such as banks, pension funds, and insurance companies.
In contrast to the infrastructure bond auction, Treasury bills were undersubscribed for the third consecutive week. The overall subscription rate declined to 96.6%, with investors showing a clear preference for the shorter 91-day paper, which was oversubscribed at 123.2%. Yields on all tenors declined, with the 364-day paper dropping most significantly to 9.6%, followed by the 91-day and 182-day papers at 8.0% and 8.1% respectively.
This downward trend in yields reflects the market’s anticipation of further monetary easing and the Treasury’s restrained borrowing appetite.
Risks and Recommendations
Risks to Monitor:
- •Elevated public borrowing may crowd out private sector credit, limiting economic growth.
- •Future interest rate hikes could reduce bond prices and investor appetite.
- •Rising inflation may erode real returns, especially for long-tenor instruments.
- •Long maturities may pose liquidity challenges for investors with short-term cash needs.
Strategic Recommendations
For Fiscal Authorities:
- •Maintain disciplined borrowing aligned with macroeconomic fundamentals.
- •Prioritize infrastructure bonds for financing strategic development initiatives.
- •Monitor investor behavior to guide future auction strategies.
For Monetary Authorities:
- •Continue aligning monetary signals with fiscal borrowing patterns.
- •Use selective bid acceptance to anchor interest rate expectations and manage market sentiment.
For Policymakers:
- •Ensure debt sustainability remains central to fiscal planning.
- •Balance infrastructure investment with the need to preserve private sector credit access.
Kenya’s FY 2025/26 budget stands at KShs 4.29 trillion, with KShs 636 billion expected from domestic borrowing. Infrastructure bonds will remain a key instrument in achieving this target. The Treasury is likely to re-enter the market through tap sales or reissues, leveraging favourable rates to ease debt service pressures.
Policymakers must continue to balance development financing with long-term debt sustainability, while remaining responsive to inflation and interest rate dynamics.
Parminder Kaur Umesh is a research analyst based in Nairobi.
*The views expressed here are the author’s own and do not necessarily reflect the editorial stance of The Kenyan Wall Street.
