Investors have been denied a premium return on the first infrastructure bond issuance in a year after the Central Bank of Kenya’s (CBK) reopened papers that rank among the lowest in returns in the market.
In the August 2026 sale, the CBK has reopened three previously issued bonds that pay annual interest of 11.75 percent, 12.67 percent and 12.74 percent, avoiding more lucrative options for investors whose annual return ranges from 13.7 percent to 18.5 percent.
These rates are also at par with the net returns for other ordinary bonds that have been issued or reopened in recent months, meaning there is no advantage to be gained by buyers who had kept their capital in hand waiting for the infrastructure papers.
The CBK has in recent months reopened long-term bonds that carry annual interest of between 12.9 and 14.2 percent. Net of withholding tax of 10 percent, these papers pay investors between 11.3 percent and 12.8 percent.
Unlike ordinary bonds, infrastructure papers are not levied the withholding taxes of 10 or 15 percent on interest.
Previous infrastructure bond sales tended to pay a premium return to buyers compared to other securities, due to a combination of the tax free status and relatively high annual interest rates.
This premium resulted in large oversubscriptions whenever they were issued in the past, with some sales realising bids in excess of Sh200 billion against targets of between Sh50 billion and Sh90 billion.
The previous infrastructure bond that was issued in August 2025, for instance, realised a record Sh323.4 billion in bids, against its target of Sh90 billion. The cash offered to the government by investors was nearly equivalent to the Sh327 billion it cost to build the Mombasa-Nairobi phase of the standard gauge railway.
The infrastructure bonds account for the most lucrative securities issued by the government in the last five years, led by an 8.5-year bond sold in February 2024 at 18.46 percent, and a 6.5-year bond issued in November 2023 at 17.93 percent.
To get similar returns from taxed bonds, the annual interest rates would need to be 20.51 percent and 19.92 percent.
Other high paying infrastructure bonds issued recently include a seven-year paper sold in November 2022 at 15.84 percent, a 17-year security sold in March 2023 at 14.4 percent and a 14-year bond floated in November 2022 at 13.94 percent.
The CBK avoided these high paying bonds when picking the papers to reopen for the August 2026 sale that is targeting Sh150 billion. It instead went for a 16-year bond issued in October 2019 at 11.75 percent, an 18-year paper from April 2021 at 12.67 percent and a 21-year bond from September 2021 at 12.74 percent.
Reopening the relatively long dated bonds at government-friendly rates fits in with the CBK’s policy of lengthening the maturity profile of government domestic debt while keeping borrowing costs low amid a growing public debt burden.
For retail investors who put up bids of Sh1 million or less, the reopened bonds represent relatively short securities due to amortisation clauses that allow the CBK to repay part of the principal ahead of full maturity.
Amortisation in a bond means the staggered repayment of the principal amount within the life of a bond, usually done in order to lessen the burden of a large bullet settlement when the paper matures fully.
On the 16-year bond, the government will repay 50 percent of principal in October 2030, while the 18-year bond will settle half of its principal in April 2030.
All investments below Sh1 million will however be repaid in full at the amortisation date, meaning that the bonds are effectively three or four-year securities for investors who fall under this category.
