Dropping interest rates are not deterring investor from taking up government securities leaving corporate bonds struggling to keep pace.
This has seen turnover in the Treasury bond market cross Sh1trillion mark, in the first quarter of 2026, reaching Sh1.08 trillion, a 49 per cent jump compared to the same period last year.
Capital Markets Authority (CMA) data, shows that in the period, the National Treasury raised Sh265.7 billion through domestic bond issuances, pointing to the huge scale of demand for government paper.
The boom paints a picture of a growing preference among investors for sovereign debt over corporate bonds, as fund managers, banks and pension schemes seek safety, liquidity and predictable returns in an uncertain economic environment.
“The total value of outstanding corporate bonds stood at Sh96.4 billion as at the end of 2025, a fraction of the volumes being absorbed by government issuances,” CMA data shows.
The trend comes despite a gradual decline in interest rates, which would typically encourage investors to diversify into higher-yielding corporate instruments.
Instead, the market is witnessing a consolidation around Treasury securities, reinforcing the State’s dominance in domestic capital markets.
According to CMA chief executive Wyckliffe Shamiah the private bond category recorded improvement, with Linzi Asset Based Securities having the highest outstanding amount at Sh44.8 billion.
However, the increase was largely driven by issuances under medium-term note (MTN) programmes by a handful of large firms, including Safaricom and East African Breweries Limited (EABL), signalling continued reliance on a narrow pool of blue-chip corporates to sustain the market.
“In the corporate bonds market, the total value of outstanding bond issues stood at Sh96.4 billion as at the end of December 2025, representing an increase of 37 per cent. This increase could be attributed to the issuance of the EABL and Safaricom MTN’s during the quarter ended December 2025,” said Shamiah in the quarterly report.
The imbalance has raised concerns among economists and market participants, who warn that the growing appetite for government debt is crowding out private sector access to long-term financing.
For instance, the experts at National Government Budget Implementation Review Report, note that between July and December 2025, Treasury executed a financial maneuver of a Sh3 billion-a-day borrowing spree that has now set the country’s fiscal architecture on edge.
The report, published by Controller of Budget Margaret Nyakang’o, shows a nation operating at the limits of its fiscal capacity.
According to the CoB as investors look to safety choosing to lend to government, the implications extend far beyond, threatening to stifle private sector investment and further constrict the disposable income of average households already grappling with a volatile cost of living.
This dynamic is particularly significant at a time when businesses are seeking affordable financing to expand operations, invest in new capacity and navigate a challenging economic landscape.
The CMA has in recent years introduced measures aimed at promoting corporate debt issuance, including streamlined approval processes and efforts to enhance investor awareness. However, uptake has remained slow.
Yet, the dominance of Treasury bonds continues to be reinforced by strong demand at primary auctions, where investor bids have consistently exceeded the amounts on offer.
