Investors who sold their Treasury bonds on the secondary market at the Nairobi bourse made a profit of Sh132.7 billion after falling returns on new issuances triggered a surge in prices and demand for older, higher-return papers.
The gains were 30.7 percent higher compared to the Sh101.58 billion profits that bond investors booked at the Nairobi Securities Exchange (NSE) in the first half of 2025.
The profits are derived from the difference between the selling price of the bonds at the secondary market and their face value, which is the amount the seller paid the government when purchasing the paper in the primary market at the Central Bank of Kenya (CBK).
New data from the Capital Markets Authority (CMA) shows the investors sold bonds for Sh1.7 trillion in the half-year period, having acquired them for Sh1.57 trillion. In the first half of 2025, the bond sales generated Sh1.39 trillion from paper that had a face value of Sh1.29 trillion.
Analysts say that the bulk of the trading activity is controlled by institutional investors such as banks, fund managers, and insurance firms, who form the largest lenders to the government in the bond market.
“We have seen activity mainly from institutional investors like banks and fund managers, as they execute their various strategies around bond investments held for trading, in addition to the usual booking of profits,” said Churchill Ogutu, head of research at Capital A Investment Bank.
“Banks have also been actively selling and buying back bonds in the secondary market as part of their liquidity management activity.”
New bonds are usually issued in units priced at Sh100 each, but these can be sold to other investors at either a higher or lower price, depending on the demand in the market and prevailing interest rates at the time of sale.
The most lucrative of these securities in the secondary market remain the tax-free infrastructure bonds (IFBs) sold in 2023 and 2024, which pay annual interest rates of between 14.4 percent and 18.5 percent. Other ordinary bonds have a withholding tax of 10 percent on interest for tenors above five years, while those of a lower duration are taxed at 15 percent.
In order to convince holders of the lucrative infrastructure bonds to sell their paper, buyers have been offering them a premium of up to 23 percent on the face value of the securities.
The highest premium is on an 8.5-year IFB that was issued in February 2024 at an annual interest rate of 18.5 percent. Buyers are paying a price of Sh122.60 for each unit of Sh100 of the bond in the secondary market, where it has recorded trades worth Sh63 billion in the first half of the year.
It is followed by a 6.5-year IFB that was floated in November 2023 at a rate of 17.93 percent, which is being sold at Sh113.84 per unit at the NSE.
A 17-year IFB sold in March 2023 at 14.4 percent is trading at Sh110.88 per unit, while a seven-year bond issued in June 2013 at a coupon of 15.83 percent is trading at Sh112 per unit.
Demand for a 19-year IFB that was floated in 2022 has also gone up, owing it its coupon of 14 percent.
Besides the IFBs, investors have heavily traded short-term, ordinary bonds, such as a pair of five-year papers issued in 2021 and 2023.
The five-year bond issued in July 2023 is trading at Sh112.21 per unit, with investors attracted by its short duration and a relatively high coupon of 16.84 percent.
Investors have sought to lock in these papers due to the rate outlook, pointing to even lower returns from new bond sales in the medium term.
New bonds are now offering annual interest rates of between 12 percent and 14.2 percent, before withholding taxes of 10 to 15 percent on the interest.
The decline in rates follows the move by the CBK to slash its base rate from 13 percent to 8.75 percent from August 2024 to date in a bid to encourage lending to the private sector.
The bonds market has also grown in popularity among investors with a marked increase in holdings of the securities by retailers and fund managers. This increased participation has fed into the demand for bonds in the secondary market, giving those holding high-priced papers an avenue to sell for a profit.
The vibrancy of the market is backed by the introduction of the CBK’s Dhow CSD digital bonds trading platform in 2023, which has made it easier to buy government securities.
Households now hold Sh466.2 billion or 6.3 percent of government’s domestic debt, which stood at Sh7.4 trillion as at July 17. At the end of June 2025, they held Sh409.3 billion of the State’s domestic debt, CBK numbers show.
Foreign investors hold Sh310.8 billion of the debt, with non-financial companies and non-profit organisations holding Sh111 billion and Sh74 billion respectively.
Previously, these retail bond buyers were bundled together under one umbrella known as ‘other investors’, alongside self-help groups, private companies, individuals, saccos, and religious and educational institutions.
Commercial banks remain the biggest lenders to the government at Sh2.62 trillion, followed by pension funds at Sh1.07 trillion and insurance companies at Sh1.04 trillion.
Government institutions, including parastatals, hold Sh518 billion worth of government debt.
