Stable Liquidity, Robust T-Bill Demand As CBK Unveils First Bond Switch of FY25/26

Liquidity conditions remained largely stable in the week, with the Kenya Shilling Overnight Interbank Average (KESONIA) rising by 0.74bps w/w to an average of 8.99%. Interbank lending advanced during the week, with average traded volumes trending higher by 103.4% w/w to KES 15.25bn, from KES 7.49bn in the prior week.

This week, demand for Treasury Bills remained robust, with the overall subscription rate easing slightly to 128.4% from 130.3% in the previous week. The accepted amount was higher than the maturity amount, resulting in a net borrowing of KES 6.2bn. In absolute terms, the 364-day paper received the highest demand, garnering 95.0% of the total submitted bids and a subscription rate of 292.8%.

The 91-day paper recorded a performance rate of 24.0%, while the 184-day paper recorded a dismal performance rate of 5.8%. Overall, KES 28.5bn was accepted, with the weighted average rate of accepted bids at 7.70% (-2.7 bps w/w), 7.80% (flat for the fifth consecutive auction), and 9.20% (-0.1bps w/w) for the 91-day, 182-day, and 364-day papers, respectively.

In the primary bond market, the CBK is concurrently offering a bond switch from FXD1/2016/010 to the reopened FXD1/2022/018, targeting up to KES 20.0bn (c.19.3% of the outstanding amount) via multi-price auction from 9th December 2025 to 19th January 2026. This marks the first switch auction in FY25/26, which is part of the Government’s liability management operations that seek to use buybacks and switches to actively manage maturity risk, reduce borrowing costs, and smooth the redemption profile of domestic debt. In particular, FXD1/2016/010 had been earmarked for two liability management operations (October 2025 and January 2026). The offer is on a voluntary basis for investors with unencumbered holdings in FXD1/2016/010 as at 19th January 2026.

Experts opine that the switch auction will provide investors the opportunity to extend the duration of their portfolios (especially fund managers who are keen on managing their cashflows), locking in the comparatively attractive 13.942% coupon rate on FXD1/2022/015 amid recent rate declines. Furthermore, the switch may also help investors address potential reinvestment risk if yields in the market fall even further, should the paper be held till August 2026.

Read Also: Interbank Lending Surges As T-Bill Demand Contracts: CBK Seeks KES 50bn Via Reopened Bonds