Listen to This Article Enhance your reading experience by listening to this article.

Kenya’s bond and T-bill market saw significant transformations in 2024 compared to 2023, influenced by various economic factors and policy changes.

This year has been characterized by notable volatility in the bond market, with the 10-year government bond yield peaking at 19.40 per cent in April before stabilizing around 14.98 per cent by December.

This shift reflects changing investor sentiment as T-bill rates fell below 10 per cent, marking a significant decrease from previous levels. These trends have been driven largely by the Central Bank of Kenya’s (CBK) monetary policy adjustments aimed at stimulating economic growth amidst declining inflation rates.

In contrast, 2023 saw higher yields and robust demand for T-bills. The average yield on 10-year bonds was around 14.37 per cent in April of that year, but as interest rates rose throughout the year, investor appetite began to wane.

Challenges faced by CBK

The CBK faced challenges in managing liquidity while addressing the rising costs of borrowing, which contributed to a more cautious approach from investors. The tightening monetary policy implemented in response to inflationary pressures created an environment where investors were hesitant to commit to short-term securities, fearing further rate hikes.

The shift observed in 2024 can be attributed to several key factors. Firstly, the CBK implemented a series of interest rate cuts in late 2024 in response to slowing economic growth and easing inflation pressures.

This marked a departure from the tight monetary policy that had characterized much of the previous year and helped restore some investor confidence. Lower interest rates generally encourage borrowing and investment, which can stimulate economic activity and improve market sentiment. Additionally, Treasury has actively sought to diversify its investor base beyond traditional banks, which have historically dominated the market. In an effort to reduce reliance on commercial banks—who controlled nearly 45 per cent of government debt in 2024—the Treasury has engaged non-bank financial institutions such as pension funds and mutual funds. This aims to stabilize yields and manage debt costs more effectively while fostering a more resilient financial environment.