Kenya's fixed income market performance

Kenya's fixed-income market is experiencing growth and heightened investor interest, with recent trends such as oversubscribed treasury bill auctions and increased turnover in the Infrastructure Bond (IFB) segment pointing to a positive market outlook. Stellar Swakei, Senior Research Associate at Standard Investment Bank, sheds light on the factors driving the surge in demand for T-bills and the implications for the market. Swakei highlights the attractiveness of treasury bills to institutional investors like banks, pension funds, and insurance funds due to the appealing yields offered. The short tenor of T-bills, ranging from three months to one year, coupled with improved liquidity and government support, has made them a preferred investment choice. The recent slight decline in interest rates, attributed to noncompetitive bids, is expected to lower government debt servicing costs marginally. The funds raised through T-bill auctions primarily service existing debt burdens, with the balance allocated to finance budgetary requirements like current expenditure and development. Looking ahead, Swakei anticipates a strengthened demand for treasury bills and bonds as the government’s borrowing appetite increases amid a widening fiscal deficit. The turn over in the IFB segment, notably the 2023 8.5-year bond, underscores the market sentiment favoring tax-free infrastructure bonds with attractive coupon rates, particularly appealing to foreign investors. Swakei expects rates to increase in the short term until fiscal certainty is established through improved tax collections and government commitment to reduce expenditure. Despite the uncertainty, the fixed-income market in Kenya is poised for continued growth and investor interest, driven by favorable market conditions and demand for high-yielding securities.