The Nairobi Securities Exchange (NSE) has recorded a major shift in investor appetite, with government bonds emerging as the most sought-after asset class amid sweeping reforms and changing market dynamics.
High-net-worth investors in Kenya earned Sh57.6 billion in capital gains from Treasury bond sales at the NSE in the first quarter of 2025, positioning government securities as the country’s most lucrative asset class this year.
The surge in profits came as falling interest rates pushed up secondary market bond prices, especially tax-free infrastructure bonds, which traded at up to 22.6 percent. Four infrastructure bonds issued since 2023 accounted for nearly a third of all Q1 bond turnover.
The NSE’s bond turnover reached a record Sh724.3 billion in the quarter, more than triple the Sh209.5 billion traded a year earlier. The rally was driven by investors offloading older high-interest bonds to lock in profits amid declining yields on new issuances.
The Central Bank’s rate cut from 13 percent in August 2024 to 10 percent in April 2025 triggered a sharp drop in yields, with 2025 bonds offering between 13.8 percent and 15.7 percent, compared to over 16.5 percent in Q1 2024.
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Compared to capital gains of just 6 percent from equities and low single digits in real estate, bonds offered significantly better returns, cementing their appeal in a cooling economy. As government paper continues to outperform, fixed-income investors are capitalizing on the yield-price inverse to rebalance portfolios for premium gains.
The strong performance of the bond market reflects investor sentiment in Kenya’s economic prospects. The Nairobi Securities Exchange has implemented reforms, including the operationalisation of a hybrid fixed-income market, combining both on-screen and over-the-counter trading of fixed-income securities.
This hybrid model has improved pre-trade transparency through the introduction of a Bond Quotations Board, providing investors with increased visibility into market quotes.
Capital Markets Authority (CMA) Chief Executive Officer Wyckliffe Shamiah said the reforms are part of efforts to deepen the bond market and enhance investor confidence.
“The implementation of the hybrid fixed-income market and the Bond Quotations Board is aimed at increasing transparency and efficiency in the bond market, thereby attracting more investors,” Shamiah said.
