Kenya’s fixed-income market has undergone a remarkable transformation that has positioned it as East Africa’s most vibrant bond trading hub. Consequently, the recent establishment of the East African Bond Exchange (EABX) has sparked crucial debates about whether the country genuinely requires a second trading platform. Moreover, with over Sh2 trillion traded by September 2025 and record market performance under the unified framework, compelling evidence suggests that duplicating infrastructure risks undermining the very gains that have been painstakingly achieved.
Unprecedented Market Performance Under Current Framework
The existing bond trading ecosystem has demonstrated exceptional efficiency and growth that validates its robustness. Specifically, Kenya’s bond market surpassed the Sh2 trillion turnover threshold in September 2025, exceeding the full-year 2024 record of Sh1.544 trillion by over 30 percent. Furthermore, this milestone was reached with an entire quarter still remaining in the fiscal year, indicating sustained momentum and robust investor participation.
Additionally, the current infrastructure powered by the Nairobi Securities Exchange’s Automated Trading System (ATS) and integrated with the Central Bank of Kenya’s Dhow Central Securities Depository (CSD) has proven highly efficient in supporting market growth and price discovery. Indeed, weekly secondary market volumes now average Sh30.6 billion, representing a historic high in the market’s evolution. Therefore, these figures demonstrate that the existing system is not merely functional but thriving beyond previous expectations.
Strong Investor Confidence and Demand Indicators
Government bond auctions have consistently demonstrated exceptional oversubscription rates throughout 2025, providing powerful evidence of investor confidence in the current framework. Notably, the August 2025 infrastructure bond auction attracted bids worth Sh323 billion against a Sh90 billion target, representing significant demand for Kenya’s sovereign securities. Similarly, tap sales and reopenings routinely attracted bids ranging from 200 percent to 400 percent of offered amounts, far exceeding typical patterns observed in most fixed-income markets globally.
Moreover, retail investors have evolved from peripheral participants to become significant players who rival banks in Treasury bill auctions. This transformation has been facilitated by the Dhow CSD platform, which enables investments from as little as Sh50,000, thereby democratizing access to government securities. Consequently, market inclusivity has expanded dramatically, bringing thousands of individual Kenyans into the formal investment ecosystem. Therefore, the argument that additional platforms are needed to enhance participation appears contradicted by these impressive accessibility gains.
The Critical Importance of a Unified Yield Curve
At the core of this debate lies the fundamental question of yield curves, which serve as the backbone of any fixed-income market. Indeed, the CBK has consistently emphasized the importance of maintaining a single, consolidated yield curve that promotes consistent pricing, accurate risk assessment, and efficient monetary policy transmission. Furthermore, a unified curve provides market participants with clear reference points for valuing debt instruments across different maturities and risk profiles.
Conversely, the establishment of dual yield curves would create significant confusion and distortions throughout the financial system. Specifically, investors and issuers could face ambiguity over which curve to reference for pricing decisions, potentially leading to inconsistent valuations, conflicting market signals, and erosion of confidence. Additionally, the CBK has expressed concerns that dual platforms will distort the market through creation of two prices for the same bond, undermining the price discovery mechanism that has been carefully developed over years of market reforms.
Moreover, for policymakers tasked with managing macroeconomic stability, dual curves would blur the transmission of interest rate changes, making it significantly harder for the CBK to manage liquidity and inflation expectations effectively. Therefore, fragmenting Kenya’s progress toward a unified, transparent yield curve represents a concerning step backward that could jeopardize monetary policy effectiveness.
Questionable Liquidity Arguments and Elitist Model Concerns
Proponents of EABX have argued that the new platform will enhance liquidity and competition within Kenya’s bond market. However, recent market data comprehensively disproves this liquidity narrative. Kenya’s bond market liquidity has already reached historic highs, driven by structural reforms rather than market fragmentation. Weekly data reveals significant volatility interpreted by market analysts as evidence of active price discovery, healthy secondary market liquidity, and robust participation from diverse investor categories.
Furthermore, EABX’s bank-focused model, which limits trading participation primarily to large financial institutions, risks reversing the inclusivity gains that have been achieved under the NSE-CBK framework. Indeed, such elitist exclusivity could sideline smaller banks, pension funds, insurance companies, stockbrokers, and critically, retail investors who have only recently gained meaningful access to bond markets. Consequently, a market structure that benefits a select few while undermining transparency and price discovery would represent a concerning regression from Kenya’s democratization objectives.
Additionally, bond dealers in brokerage entities are expected to experience revenue losses should the OTC market cement direct engagement between traders, potentially disrupting the intermediary ecosystem that currently facilitates retail participation. Therefore, rather than enhancing market efficiency, the dual-platform model risks creating a two-tiered system that privileges institutional players at the expense of broader market participation.
Regulatory Tensions and Implementation Challenges
The establishment of EABX has exposed significant tensions between key regulatory stakeholders. The Treasury has backed EABX while the Central Bank of Kenya has raised concerns over the second bond trading platform, with the banking regulator denying the exchange an electronic link to integrate its system. This institutional discord raises fundamental questions about coordination, oversight, and the coherence of Kenya’s capital markets development strategy.
Moreover, while the Capital Markets Authority granted EABX its operating license in February 2024, secondary trading on the platform has yet to commence due to the CBK’s refusal to provide the necessary electronic integration with the government securities depository. Consequently, this regulatory impasse has created uncertainty for market participants and raises questions about whether the dual-platform model is operationally viable without full cooperation from the central bank.
Furthermore, the Treasury’s concurrent push to strip the CBK of its role in selling bonds and Treasury bills, transferring these functions to the Public Debt Management Office, suggests broader institutional restructuring that could compound market fragmentation concerns. Therefore, proceeding with EABX implementation amid these unresolved regulatory tensions risks creating systemic inefficiencies and coordination failures.
Learning from International Precedents
While EABX supporters have cited Nigeria’s experience with the FMDQ Group as a successful precedent for dual-platform markets, this comparison warrants careful scrutiny. Indeed, the Capital Markets Authority acknowledged that Nigeria’s establishment of an OTC bond trading market enabled it to leapfrog ahead of Kenya in bond trading activity, despite Kenya’s initial lead in bond market reforms a decade earlier.
However, the Nigerian context differs significantly from Kenya’s current situation. Nigeria established its OTC market when its bond infrastructure was substantially less developed than Kenya’s is today. Conversely, Kenya is now implementing EABX at a time when its existing platform has achieved record performance, raising questions about whether market fragmentation is the appropriate strategy for a thriving market rather than a struggling one.
Moreover, international best practices generally emphasize market consolidation rather than fragmentation, particularly for smaller economies where liquidity concentration is crucial for efficient price discovery. Therefore, Kenya risks learning the wrong lessons from Nigeria’s experience by pursuing duplication rather than deepening reforms within its existing, well-functioning infrastructure.
The Superior Alternative: Deepening Existing Infrastructure
Rather than fragmenting market infrastructure through establishment of a second exchange, Kenya’s bond market would benefit substantially more from deeper reforms within the existing NSE-CBK framework. Specifically, priority areas for enhancement include expanding the range of fixed-income products available for trading, improving settlement efficiency and reducing transaction costs, strengthening market-making arrangements to ensure continuous liquidity, and enhancing transparency through improved disclosure requirements and real-time data dissemination.
Additionally, investments in technology infrastructure could further streamline trading processes, reduce operational risks, and improve accessibility for both institutional and retail participants. Furthermore, regulatory reforms focused on harmonizing tax treatment of different bond categories, clarifying legal frameworks for innovative structures, and strengthening investor protection mechanisms would yield greater benefits than platform duplication.
Moreover, educational initiatives targeting potential investors, particularly in underserved regions and demographic segments, could significantly expand market participation without requiring new trading infrastructure. Consequently, these reforms would build upon proven success rather than risking the fragmentation and confusion that dual platforms would inevitably create.
Conclusion: Preserving Hard-Won Market Gains
Kenya’s bond market transformation represents one of the country’s most significant capital market achievements. The system has evolved from constrained liquidity and limited participation to become a vibrant, inclusive marketplace that facilitates efficient government financing and provides attractive investment opportunities for Kenyans across the economic spectrum. Therefore, decisions about market infrastructure should be guided by evidence of what works rather than theoretical arguments about competition benefits.
The data overwhelmingly demonstrates that the current unified framework is delivering exceptional results. Fragmenting this success through establishment of a second exchange risks creating confusion, undermining the unified yield curve, reducing transparency, and reversing inclusivity gains. Moreover, the regulatory tensions surrounding EABX implementation suggest that the dual-platform model lacks the institutional consensus necessary for effective operation.
Ultimately, Kenya’s bond market does not require more platforms but rather deeper, more thoughtful reforms within the existing infrastructure that has proven its capacity to deliver world-class performance. Preserving the unified framework while continuing to enhance its efficiency, accessibility, and product range represents the prudent path forward for sustaining Kenya’s fixed-income market leadership in East Africa.
