The Central Bank of Kenya (CBK) is implementing reforms in the government bond market by designating major local banks as market makers and liquidity providers.
It is part of an initiative supported by the International Monetary Fund (IMF) and World Bank to deepen the secondary government securities market and enhance trading transparency.
Key elements of the proposed changes include top commercial banks with strong capitalization to provide continuous two way bond quotations during trading hours.
There will be a required minimum quotes of Ksh.20 million ($155,000) per trade, with increments of Ksh.50,000, and set bid ask spread capped at 25 basis points.
Also, obligatory trading hours with continuous quoting will be between 9:30 am and 2:30 pm, and a six to nine month pilot program, after stakeholder consultations on draft over the counter (OTC) rules.
Currently, banks account for roughly 45% of Kenyan government domestic debt holdings (~Ksh.2.83 trillion) followed by pension funds (28.8%) and insurance firms (7.3%).
Also Read: How Kenya’s Treasury Bills, Bonds Market Performed in January 2025
This is important because CBK is looking at enhancing liquidity – ensuring active pricing and ease of trading for benchmark government bonds, improve price transparency, reducing information asymmetry in secondary markets, accelerate access to cash – bondholders can more swiftly convert holdings into cash and support monetary and fiscal policy – by lowering borrowing costs and attracting foreign investmen.
The program addresses the ongoing rebalancing of credit markets in Kenya, where banks have been shying away from private credit in favor of government bonds.
As lending to the private sector declined—down 1.4% in late 2024—private entities struggled to access capital, partly due to banks preferring low-risk government securities.
The bond reform will formalize banks’ role in secondary trading of government bonds through a regulated market-maker pilot program.
It seeks to foster a more liquid and transparent treasury bond market—benefiting both institutional and retail investors by ensuring continuous pricing and tighter spread controls,
