The Central Bank of Kenya’s (CBK) latest Treasury bond switch auction attracted bids worth KSh3.78 billion against a target of KSh10 billion, representing a performance rate of 37.8%. The auction, which closed on November 9, 2026, and settled on November 11, was aimed at allowing investors holding selected government securities to exchange them for a longer-dated Treasury bond. Unlike an ordinary bond auction, where investors provide fresh money to the government in exchange for securities, a bond switch allows existing investors to surrender securities they already hold and receive another government bond in return. The arrangement helps the government manage its debt repayment schedule by moving obligations to a later maturity date.
For the November auction, CBK offered investors holding four existing government securities an opportunity to switch into FXD4/2019/010, a ten-year Treasury bond issued in 2019 that matures on November 12, 2029. The eligible securities included the five-year Treasury bond FXD1/2023/005, which matures in July 2028, and three Treasury bills: 2696/091, 2657/182 and 2585/364, all scheduled to mature on November 23, 2026. The destination bond carries a coupon rate of 12.28% per annum, with interest paid semi-annually. Investors were allowed to exchange part or all of their eligible holdings, with the government targeting KSh10 billion in switches.
Of the KSh10 billion targeted, investors submitted bids worth KSh3.78 billion, all of which were accepted. The largest contribution came from holders of the 91-day Treasury bill, who switched approximately KSh3.07 billion. Holders of the five-year bond transferred KSh785.25 million, while the 364-day and 182-day Treasury bills contributed KSh33.3 million and KSh250,000, respectively. The weighted average yield accepted at the auction was 11.24%, with the destination bond priced at KSh108.56 for every KSh100 of face value.
The relatively low participation was partly attributed to the difference in returns between the existing five-year bond and the destination bond. The five-year security offers a coupon of 16.844%, significantly higher than the 12.28% offered by the bond investors were expected to switch into. Consequently, investors holding the existing bond had little incentive to surrender a higher-paying security for a lower coupon, particularly when the additional maturity period was relatively short. Expectations of higher interest rates may also have influenced decisions, with October inflation rising to 7.3%, increasing concerns about future monetary policy adjustments and potentially more attractive investment yields.
For the government, bond switches provide a way to spread out debt repayments, reduce refinancing pressure and manage domestic borrowing obligations without immediately settling maturing securities in cash. However, they do not eliminate government debt; they simply change when the debt becomes payable. The November outcome highlights the importance of offering competitive terms when encouraging investors to exchange existing securities, particularly in an environment where returns and interest rate expectations influence investment decisions.
