Kenya’s Bond Market Reform Sparks Concerns Over Investor Access

Kenya is planning a significant overhaul of its bond issuance framework that could reshape how government securities are bought and sold, but not without controversy. The Treasury and Central Bank are working on new rules that will see a few major commercial banks take over the role of primary dealers in a planned wholesale bond market.

This new model will replace the current auction-based system where all investors submit bids. Instead, selected banks would acquire the entire bond issue directly and resell it to the market. While the approach is expected to help the government secure steady demand and stabilize bond yields, it is also raising alarms among smaller investors and capital markets players.

Institutional investors like pension funds, insurers, and retail buyers may find themselves edged out at the primary level, forced to purchase bonds at additional costs from the banks. Non-bank investors might benefit from improved secondary market liquidity, but access to initial bond offers will likely become more limited and expensive.

The Nairobi Securities Exchange and licensed brokers could also take a hit, as large transactions shift to privately-run bank platforms, bypassing the public exchange. This change threatens to reduce trading volumes and weaken the role of the exchange in price discovery.

Tensions with the East African Bond Exchange have resurfaced as it continues to wait for access to the central settlement system. The regulatory shift comes amid efforts to manage borrowing costs more effectively after yields surged last year before easing slightly.

Stakeholders have until mid-August to respond to the proposals, with rollout expected before the end of 2025.