Treasury bond investors made a profit of Sh57.6 billion selling their securities in the secondary market at the Nairobi Securities Exchange (NSE) in the first quarter of the year, underlining government paper's status as top earner ahead of shares and real estate.
They cashed in on demand for high interest infrastructure bonds amid a decline in returns from new issuances coming into the market to sell off their holdings at a premium to buyers.
Capital gains from shares and property meanwhile stood in the single digits at between 1.7 percent and six percent, with the Nairobi bourse coming off a high base following a Sh500 billion or 34 percent appreciation in investor wealth in 2024.
In a similar period last year, investors selling the government paper booked a loss of Sh2.9 billion, having been forced to offer discounts on price to attract buyers because new auctions coming into the market were paying higher interest compared to existing bonds.
Data published by the Capital Markets Authority (CMA) shows that the higher profits have also coincided with an increase in trading activity on the secondary market at the NSE, reflecting a rush to cash in on the capital gains being realised on the bonds.
In the quarter, investors traded a record Sh724.3 billion worth of Treasury bonds in the market. These papers had a face value of Sh666.7 billion, hence the capital gains being realised by the sellers. In the first quarter of 2024, the realised value of bond trades stood at Sh209.5 billion, with the face value at Sh212.4 billion.
Bonds are normally issued in units of a face or par value of Sh100. However, when being traded on the secondary market, a bond attracts a premium or discount on this value depending on demand from buyers, and whether it carries a higher or lower interest rate compared to what is being paid on new issuances of a similar tenor (yield).
Bond yields and prices at the secondary market therefore feature an inverse relationship where a rise in one signals a decline in the other.
The yields rise when risk sentiment goes up, meaning investors are willing to offer their bonds at a discount to secure buyers and in turn take up new issuances in the primary market at higher interest rates.
On the other hand, a fall in risk sentiment sends yields lower and prices higher, due to investors demanding a premium to let go of their bonds in hand on account of new issuances of similar tenor paying less in interest.
This year, interest rates on government securities have fallen significantly in line with the cut in the Central Bank Rate (CBR) from 13 percent in August 2024 to 10 percent in April 2025.
Bonds floated in the first quarter of this year offered effective yields of between 13.8 percent and 15.7 percent, compared to yields of between 16.5 percent and 18.8 percent on papers sold in the first quarter of 2024.
This fall in yields has seen the prices of most bonds —particularly infrastructure bonds (IFBs) that have tax free interest— in the market rise sharply, enticing their holders to sell. Four new IFBs that were issued between January 2023 and February 2024 have therefore been trading at prices of between Sh107 and Sh122, well above their par of Sh100.
The most lucrative of these bonds, an 8.5-year infrastructure bond issued in February 2024, pays interest of 18.46 percent. It also has the highest outstanding amount of any single security in the market at Sh240.33 billion.
This bond is currently trading at a price of Sh122.65 per unit of Sh100, effectively handing the sellers a gain of 22.6 percent on their investment when they offload the paper.
The other IFBs issued since the beginning of 2023 include a 6.5-year paper with an outstanding value of Sh187 billion, at a rate of 17.93 percent, a 17-year paper sold in March 2023 (Sh186 billion at 14.4 percent) and a seven-year bond sold in June 2023 (Sh213.3 billion at 15.84 percent).
Altogether, the four IFBs had a turnover of Sh232.1 billion in the first quarter, representing 32 percent of the market’s total in the period.
In comparative terms, the capital gains on the bonds outstripped those on other competing asset classes such as equities and property in the first three months of the year.
The equities market at the NSE recorded a six percent increase in investor wealth to Sh2.06 trillion in the quarter, although it was coming off a high base having gained 34 percent in 2024.
On the property market, average returns on house and land sales in Nairobi also stood in the single digits in the period.
A periodic land and house market survey done by real estate firm HassConsult for the first quarter showed average land price increases of 1.7 percent and 2.4 percent in Nairobi’s suburbs and satellite towns respectively. The highest increase in price per acre was seen in Kiserian at 4.96 percent to Sh12.6 million.
On house sales, the average price increase in Nairobi and its environs stood at 2.45 percent, with houses in Runda leading with a gain of 5.2 percent.
