Kenyan Eurobond yields have eased in recent weeks, defying jitters which have seen interest rates on similar instruments from advanced economies like Japan and the US rise.
The falling yields is a signal of Kenya’s opportunity to raise cash cheaply in the internal capital markets through instruments like Eurobond.
Yields on all but one Eurobond have fallen since the US Federal Reserve raised its benchmark rate earlier this month, the first since July 2023, maintaining debt affordability for Kenya which seeks to return to the markets later this year with a Sh105.8 billion ($815 million) new Eurobond.
The 11-year Eurobond maturing in 2036 has registered the largest yield contraction at 0.165 percentage points, falling to 9.087 percent on September 24 from 9.252 percent on September 15.
The 12-year Eurobond maturing in 2038 also fell by 0.1 percentage points while other Eurobonds registered declines of between 0.041 and 0.09 percentage points. The 12-year 2032 Eurobond was the only to buck the trend, as its yield rose by 0.024 percent in the period.
The ease in the Eurobond yields, which contrasts sharply with rising interest rates on bonds in advanced economies, has been attributed to sustained appetites for risk by global investors alongside improved fundamentals for emerging and frontier economies like Kenya.
“Compression of credit spreads has been broad-based but sharpest among low-rated sovereigns, aided by earlier Federal Reserve easing,” said analysts at global credit rating agency Moody’s in a note.
“Despite renewed policy-tightening risks, recent balance-sheet repair, stronger policy frameworks and favourable commodity terms of trade support EM (emerging markets) resilience.”
A credit spread refers to the extra yield or interest rate that investors demand for taking on the risk of a riskier bond with the same maturity date.
In this case, the spread refers to the return offered by an instrument like a 10-year dollar bond issued by Kenya versus the return paid by a similar US bond.
Kenya has seen improved economic fundamentals in the past year despite emerging shocks like the US-Iran crisis where stability has been underpinned by recent credit rating upgrades.
In January this year, Moody’s upgraded Kenya’s long-term foreign currency sovereign credit rating from “Caa1” to “B3”, noting that the country’s near-term risk of default had fallen.
The agency also noted that Kenya’s external liquidity position had improved, supported by higher-foreign exchange reserves, a narrower current account deficit and a stable currency.
S&P Global Ratings also revised Kenya’s long-term sovereign credit rating from “B-” to “B”, with a stable outlook in August last year, while the short-term sovereign credit rating was affirmed at “B”.
Since the start of the Middle East war in March 2026, Kenya has seen a deterioration in some of its fundamentals like the current account deficit, as costlier fuel inflates imports, resulting in a wider trade deficit.
Other fundamentals like the exchange rate have held steady supported by resilient foreign exchange reserves which have recently been topped by the State’s sale of a 15 percent stake in Safaricom to Vodacom and proceeds from Sh97.2 billion ($750 million) financing from the World Bank at the end of June.
Kenya’s foreign currency reserves closed last week at Sh1.95 trillion ($15 billion) or an equivalent 6.1-month import cover.
The lower Eurobond yields are a pivotal measure of debt affordability for Kenya in the international capital markets as it prepares to issue a new Eurobond by December.
The National Treasury annual borrowing plan for the 2026/27 cycle pencils an issuance of Sh105.8 billion ($815 million) in the second quarter of the current fiscal year.
Bond yields in advanced economies like the US and Japan have seen a significant jump in recent weeks on worsening fiscal and inflation outlooks.
Last week, the US 30-year bond hit its highest level since before the 2008/09 financial crisis underlining the demand for greater compensation by investors.
The US Federal Reserve raised its benchmark rate for the first time in more than three years on rebounding cost pressures from the Iran war while the country is also expected to fund a wider budget deficit.
Higher US Treasury yields are however expected to prop up overall borrowing costs for emerging and frontier economies like Kenya, in the long-term.
“Despite narrower credit spreads, overall external borrowing costs for many emerging markets sovereigns remained steep because of large US debt issuance, higher real rates and a fading convenience yield-the value that investors place on liquidity and safety-have contributed to higher US Treasury yields and offset much of the benefit from spread compression,” Moody’s added.
