The Central Bank of Kenya has raised an additional Sh29.2 billion by tapping its June bond issuance program, a move aimed at meeting mounting financing needs as the government enters the final stretch of its domestic borrowing agenda for the 2025/26 fiscal year. The CBK closed the tap sale on the first day of trading, underscoring the urgency of the fundraising drive.
The offering comprised 20- and 25-year government papers, both of which drew strong appetite from the market. Investors placed bids totalling Sh31 billion — significantly above the Sh20 billion target the CBK had set — prompting the regulator to shut the window early after accepting Sh29.2 billion worth of bids.
The bonds were sold at a discount, meaning investors paid below par value, a common outcome when prevailing interest rates are on the rise. The 20-year paper comes with a coupon rate of 13.2 percent, while the 25-year bond offers 13.924 percent. The higher yield on the longer-dated paper reflects market expectations that investors should be compensated more generously for tying up their money over a greater period.
The flurry of bond sales this month is a direct consequence of the fiscal pressure Treasury is facing. By May 2026, domestic borrowing receipts had reached Sh1.179 trillion, leaving the government approximately Sh360 billion short of its revised annual target of Sh1.539 trillion. With weeks left in the financial year, the CBK has had little choice but to go back to the market repeatedly to narrow that gap.
Analysts trace the financing shortfall to two intersecting problems: tax revenues have come in below expectations, while supplementary budget estimates pushed borrowing targets higher. The situation is unlikely to ease any time soon — net domestic borrowing for the next fiscal year is already projected at Sh995.7 billion, suggesting Kenyans should brace for continued heavy government activity in the bond market.
Meanwhile, Treasury bill rates have been climbing steadily, with the 364-day bill closing in on the nine percent mark. This trend reflects growing investor demands for inflation-adjusted returns, even as the CBK holds its benchmark interest rate at 8.75 percent. The divergence between rising market rates and a steady policy rate signals the delicate tightrope the regulator must walk — keeping borrowing costs manageable for government while satisfying investors seeking real returns on their money.
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