Kenya Government
Benchmark Bond Programme
General Guidelines
October 2021

1. Introduction was to improve bond market liquidity and achieve a
benchmark yield curve by minimizing bond market
This document provides general guidelines on the
fragmentation (see Annex III).
Kenya Government Benchmark Bond Programme
(BBP). 4. Enhancing Kenya’s Benchmark Bonds
Programme
2. Definition of Terms
The following main strategies continue to enhance
The definition of terms used in this document is
the benchmark bond programme:
presented in the Glossary (Annex I).
i. Sustained Building of Benchmark Bonds
3. Legal and Regulatory Provisions
A comprehensive benchmark building programme
3.1 Public Finance Management Act, 2012 (PFMA)
in place takes into consideration the following
As the Fiscal Agent of Government, CBK prepares a
a) A bond reopening schedule complete with
domestic debt programme and market development
proposed candidate bonds, reopen timing
(DPMD) strategy and a Borrowing Plan at the start of
and justification for the choices.
every financial year aligned to the prevailing Medium
b) Complementary strategic initiatives to fast
Term Debt Strategy (MTDS). A key element of the
track the benchmark building programme.
DPMD strategy is the Benchmark Bond Programme
ii. Liability Management Operations (LMOs)
(BBP), and takes into account the following desired
objectives:
Liability Management Operations are debt
management operations aimed at establishing
a) To meet the domestic borrowing target;
a targeted bond consolidation and refinancing
b) To manage the cost of debt by developing
programme through initiatives such as bond
and maintaining a well-priced stable yield
switches and buybacks to reduce refinancing risk.
curve;
c) To minimize debt maturity risk by extending
A comprehensive bond exchange programme
bond tenor and targeting a higher ratio of
includes the following elements:
T-Bonds to T-Bills;
d) To contribute to stable liquidity flows; a) A bond switching schedule complete with
proposed candidate bonds, switch timing,
e) To support market development.
switch sizes and justification for the choices.
The benchmark bond programme focuses on a
b) Bond buy backs.
comprehensive plan for building benchmark bonds
c) Complementary strategic initiatives to fast
and conducting liability management operations
track the bond switch programme.
with an aim to strengthen secondary market
The following strategies continue to be implemented
liquidity, maintain a stable and reliable benchmark
yield curve and reduce the debt cost. to enhance building of benchmark bonds:
The benchmark bonds programme in Kenya was a) National Treasury and CBK coordination
- continue close collaboration between
mooted in 2007 with the identification and adoption
National Treasury and CBK to achieve
of benchmark tenors of 2, 5, 10, 15, 20 and 25 years
the desired debt programme and market
along the yield curve. The aim of the programme
development objectives.
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Kenya Government Benchmark Bond Programme

b) Stakeholder and market engagement - 5.2 Number of benchmarks – there are six (6)
sustain engagements on bond issuance benchmark maturities of 2, 5, 10, 15, 20 and
programme and market development 25 years along the yield curve. The issuance
agenda through monthly consultation programme continues to focus on building size
forums and other engagements.
around these benchmark maturities.
c) Reopening of benchmark tenors - where
5.3 Size of benchmarks – To improve bond liquidity
bonds are undersubscribed or few bids
and reduce market fragmentation, ceiling sizes per
accepted due to aggressive pricing to
continue to build volume on the bonds. benchmark maturity were initially set at KES 30bn
for 2, 5 year and KES 40bn for 10, 15, 20 and 25 year
d) Incentivizing the bonds - package attractive
tenors respectively (Annex III). The considerations
features on the bonds such as maturities
mix and timing of issuance. for these volume ceilings at the time included the
need to manage refinancing risk on maturity of
e) Green Shoe Option (GSO) – use of GSO to
the bonds while taking into account the size of
manage pricing behavior at the auction and
the overdraft facility limit. The market has evolved
increase liquidity at the secondary market.
since 2007, with the subscription rates for Treasury
bonds increasing catalyzing an active secondary
Enhancing the benchmark bond programme is
market trading environment. Larger benchmark
expected to result in the following benefits:
sizes will help to reduce the number of series
i. Maintain an appropriate T-bond average per benchmark maturity, increase secondary
time to maturity (ATM) currently at 8.6-years market liquidity, and sustain a stable and reliable
as at June 2021. benchmark yield curve.
ii. Achieve fewer larger size bonds in the 5.4 Selection of benchmarks - All on-the-run issues
portfolio. are regarded as benchmark bonds as they create
a new basis of reference for other similar bonds.
iii. Increase bond market liquidity and sustain a
On-the-run bonds are the most recently issued
stable yield curve.
bonds (for a certain bond maturity) which the
market treats as benchmarks because they tend
iv. Increase participation by non-bank players
to be actively traded and more liquid issues.
such as pension sector firms, Insurance
Bonds cease to be on-the-run issues when they
companies and foreign investors.
are replaced by new bonds of the same original
5. General Guidelines for the Kenya maturity.
Benchmark Bonds Programme
5.5 Bond standardization – to increase fungibility of
The following are the general guidelines for the benchmarks, bonds issued under the benchmark
benchmark bonds programme: programme are standardized marketable
securities in terms of the following features; tenor
5.1 Legal and regulatory provisions – the applicable or maturity, semi-annual fixed coupon rates and
laws and regulations relating to the Government
yield basis, benchmark size, frequency of issuance
securities market in Kenya are presented in Annex
as well as identification of on-the-run and off-theII.
run issues for purposes of bond reopening.
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5.6 Considerations for the benchmark • Bonds with RTM of 18-22.9 years are
programme – the choice of instruments in the classified under 20-year benchmark
issuance programme takes into account important bucket
considerations such as investor preferences for • Bonds with RTM of 23-27.9 years are
certain maturities at points in time, prevailing classified under 25-year benchmark
secondary market bond pricing along the yield bucket
curve, debt programme objectives, market cycles b) Reopening of long-term instruments in
and seasonality, private-sector events such different maturity buckets is preferred as long
as corporate bond issuance, IPOs or dividend as the coupon rates are aligned with market
payments among others. pricing and conditions.
c) Reopening of on-the-run benchmark series
5.7 Provisions for bond reopening
considers adjustment of bond’s duration and
The following bond reopening provisions are its target size to ensure that its coupon rate is
considered: within market levels, and enhance its market
demand both at the reopening auction and
a) Existing bond series are eligible for reopening
secondary market trading.
at any time during the life of the bonds,
d) Both benchmark issuance and reopening are
depending on the following reopen maturity
complimented with liability management
bucket criteria;
operations (switches and buy backs) to reduce
• Bonds with remaining time to maturity
refinancing risks and improve liquidity of the
(RTM) of 2-3.9 years are classified under
off-the-run bonds.
2-year benchmark bucket
e) Larger bond issuance size is aimed at
• Bonds with RTM of 4-7.9 years are
increasing available tradable volume and
classified under 5-year benchmark bucket
promoting price discovery, with a careful
• Bonds with RTM of 8-12.9 years are
balance and understanding of investor
classified under 10-year benchmark
preferences to increase auction performance.
bucket
• Bonds with RTM of 13-17.9 years are
classified under 15-year benchmark
bucket
6. Enquiries and Additional Information
For enquiries please contact Central Bank of Kenya, Financial Markets Department on 2860000 or send an email
to or visit the CBK website on www.centralbank.go.ke
Financial Markets
August 2021
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Annex I : Glossary
Benchmark bond A government bond that provides a standard against which the performance of other
bonds in the market can be measured. There are different ways of determining or selecting
benchmark issues based on different country practices, including on-the-run issues for
each bond maturity, specific bond maturity with large outstanding size and being traded
near par value or bonds that are candidates for successful reopening1.
Bond Switch A switch also referred to as a “bond exchange” is a liability management operation that is
used to alter the profile of a debt portfolio.
Liability Management These are debt management operations aimed at establishing a targeted bond
bond Operations (LMOs) consolidation and refinancing programme through initiatives such as bond switches and
buy backs to reduce refinancing risk.
On-the-run bond An on-the-run issue is the most recently issued bond (for a certain bond maturity), and is
usually treated by the market as a benchmark bond because it tends to be the most liquid
or actively traded issue around that term-to-maturity. The new bond is considered the
on-the-run issue until it is replaced by a new bond of the same original term-to-maturity.
A bond ceases to be an on-the-run when it becomes a seasoned issue, often referred to as
an off-the-run issue. Most countries do not have official rules on selection of benchmarks.
(IMF & WB, 2021, 1999)
1Bond reopening refers to a re-issuance of a bond that had been issued earlier at the primary market, without changing the bond’s features such as
time to maturity, coupon rate and coupon basis and taxation among others. A bond can be reopened several times during its life with the objective
of increasing its outstanding volume and enhance its liquidity.
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Annex II: Legal and Regulatory Provisions
i. Public Finance Management Act, 2012 (PFMA)
The Public Finance Management Act, 2012 (PFMA) Section 53 (4) states that the authority of the Cabinet Secretary to
borrow money includes the authority to borrow money by issuing national government securities.
Section 63 (e) of the PFMA provides that the Public Debt Management Office (PDMO) shall be the Principal in the
issuance of government debt securities on behalf of the National Treasury. Section 50 (9) gives the Cabinet Secretary
powers to appoint and to enter into agreements with agents for the purpose of raising loans and issuing, managing
or redeeming national government securities.
Pursuant to the PFMA Section 53 (8) (c) Government securities are issued by the Central Bank of Kenya as a borrowing
agent appointed by the Cabinet Secretary on behalf of the Government.
Section 197 (1) of the Public Management (PFM) Act Regulations criteria for issuance of government securities states
as follows;
197. (1) The issuance of government securities to raise debt capital shall be by way of auction or such other method
as Cabinet Secretary may determine.
197 (6) Where national government securities are to be issued other than by auction, their terms and conditions shall
be subject to the prior approval of the Cabinet Secretary.
ii. Central Bank of Kenya Act (CBKA)
The Central Bank of Kenya Act (CBKA) Section 44 authorizes the Bank to act as fiscal agent of and banker to the
Government. The Bank in its capacity as fiscal agent is assigned the function to administer the public debt including
issuance of, payment of a return on, and redemption of, bonds and other securities of the government under Section
45 (c).
iii. Agency Agreement between National Treasury & Central Bank of Kenya
In line with the above-mentioned legal provisions, there is in place an agency agreement between the National
Treasury (NT) and Central Bank of Kenya (CBK) through Financial Markets Department. The agreement appoints
CBK as the fiscal agent of NT for the purpose of implementing the government borrowing programme as well as
issuance, management and redemption of government securities on behalf of the National Treasury.
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Annex III: Box 1: Benchmark Bonds Programme in Kenya
The benchmark bonds programme in Kenya was mooted in 2007 with the identification and adoption of benchmark
tenors of 2, 5, 10, 15, 20 and 25 years along the yield curve. The aim of the programme was to improve bond
market liquidity and achieve a benchmark yield curve by minimizing bond market fragmentation. Ceiling sizes per
bond maturity were set at KES 30bn for 2, 5 year and KES 40bn for 10, 15, 20 and 25 year tenors respectively. The
considerations for the above volume ceilings at the time, included the need to minimize refinancing risk on bond
maturity dates. Over the years, the bond portfolio size has increased substantially, growing by 732 per cent to KES 2.2
trillion in August 2021 from KES 272.2bn in June 2007. Total T-bond portfolio including infrastructure bonds stands
at KES 3.0 trillion.
The current portfolio was built through a reopening programme undertaken since 2008 as one of the benchmark
building strategies. The benchmark portfolio has 48 fixed coupon bonds (FXDs) accounting for 75% (KES 2.3 trillion)
of the KES 3.0 trillion stock of bonds. As at August 2021, the average outstanding size on the 48 bonds was KES
47.1bn, with majority (12) in the 5-y maturity bucket accounting for 27.1% (KES 613.2bn) of the benchmark stock. Five
(5) bonds have outstanding size range of KES 50-60bn each; with fourteen (14) bonds at over KES 60bn each (Table
1 below). Secondary market liquidity for government bonds has improved significantly over the period 2007 to 2021
with highest annual turnover in 2020 (KES 636.6bn), 2019 (KES 571.6bn) and 2012 (KES 522.89bn) compared to 2007
(KES 84.14bn). As a result of increased liquidity, the yield curve has sustained stability and resilience.
Eleven (11) bonds in the portfolio have up-to 2-years to maturity while 37 bonds are candidates for future reopening.
Table 1: Benchmark Portfolio Summary as at August 2021
Size per bond No. of Bonds by Remaining Maturity Bucket
<2-Year 2-Year 5-Year 10-Year 15-Year 20-Year 25-Year Total
>=KES 20bn 1 0 1 0 1 0 0 3
KES 20-30bn 3 1 1 1 1 1 0 8
KES 30-40bn 6 4 2 1 0 1 0 14
KES 40-50bn 0 1 1 0 1 0 1 4
KES 50-60bn 1 0 3 1 0 0 0 5
KES 60-70bn 0 1 3 1 1 0 0 6
KES 70-80bn 0 0 0 2 1 0 0 3
>KES 80bn 0 0 1 2 1 1 0 5
Total 11 7 12 8 6 3 1 48
Stock (KES bn) 338.6 283.5 613.2 510.4 316 162 41.4 2,265.10
% of B. Stock 14.95 12.51 27.07 22.53 13.95 7.15 1.83 100
Notes
1. 11 bonds will mature within 2-years as at August 2021 – These will not be considered for current and future reopening.
2. 37 bonds are candidates for current and future reopening.
3. Bonds with RTM of 2-3.9 years are classified under 2-year benchmark bucket
4. Bonds with RTM of 4-7.9 years are classified under 5-year benchmark bucket
5. Bonds with RTM of 8-12.9 years are classified under 10-year benchmark bucket
6. Bonds with RTM of 13-17.9 years are classified under 15-year benchmark bucket
7. Bonds with RTM of 18-22.9 years are classified under 20-year benchmark bucket
8. Bonds with RTM of 23-27.9 years are classified under 25-year benchmark bucket
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Annex IV: Box 2: Liability Management Operations (LMOs)
These are debt management operations aimed at establishing a targeted bond consolidation and refinancing
programme through initiatives such as bond switches and buybacks to reduce refinancing risk.
A switch also referred to as a “bond exchange” is a liability management operation that is used to alter the profile of
a debt portfolio. Switches have been used across the world in Brazil, Hungary, Malaysia, Poland, United Kingdom,
Canada and South Africa amongst others. These countries have used switching to smooth bond maturities, manage
market liquidity, lengthen the maturity profile and reduce market risk. In some jurisdictions, switching is done
regularly on a bi-weekly, monthly or quarterly basis.
The idea of switching Government securities was mooted in February 2020 with the objective of lengthening the
maturity profile of existing debt by targeting upcoming maturities of T-bills. At the time, the largest share of the
Treasury bills in the domestic debt portfolio was the 364-day bills accounting for 86.5 percent (KES 797.3bn) of the
total outstanding stock of T-bills (KES 921.5bn).
The inaugural Government securities switch was successfully conducted on June 1, 2020 and involved the 364-day
T-bill Issue No.2236/364 with a stock of KES 25.6 billion, as the source instrument and a 6-year (effective 4.5 years)
10.2 percent coupon amortized Infrastructure Bond (IFB), Issue No. IFB1/2020/6 as the destination bond. Total bids
received at the IFB auction amounted to KES 21.2bn against the source T-bill maturity of KES 25.6bn, representing
83% subscription rate. KES 20.2bn was accepted at an average yield of 11.602% compared to the overall market
weighed yield of 11.634%.
The success of the inaugural switch was driven by the appeal of the product to the investor pool, close engagement
with stakeholders, attractive features in the destination bond and sustained consistent messaging by CBK to the
market that helped to strengthen confidence and credibility. CBK continues to review the regular issuance programme
to include a switch strategy at appropriate points, to rebalance the portfolio and support market development.
Building on the proof of concept and operational success of the inaugural switch, additional improvements have
been considered including exploring switch transactions capable of migrating maturing obligations ahead of
maturity dates to allow larger benchmark issues and support a more resilient benchmark yield curve.
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Annex V: General guidelines for the Kenya Government Securities Switch Transactions
The rationale for Government securities switch is to;
a) Reorganize the maturity profile of outstanding debt through issuance of longer dated bonds.
b) Reduce refinancing risk by smoothing the domestic maturity profile, as a cash management tool.
c) Manage market liquidity through reducing the number of illiquid small issues, and consolidating them into larger
more liquid stocks.
The general guidelines for Kenya Government securities switch are as follows:
i. Switch bonds are issued as destination instruments targeting the holders of specific T-bills and T-bonds (source
instruments) due to mature in the near future.
ii. All holders of the identified source instruments can participate in the switch, but on voluntary and optional
basis. Excluding investors who do not hold the T-bills will prevent incentivizing the whole market as this could
destabilize the yield curve.
iii. Investors who wish to participate in the switch auction must reinvest the entire maturity value in the source
instrument.
iv. The switch destination bonds are issued through a multiple price auction with both competitive and noncompetitive bidding.
v. The switch destination bonds can be reopened in future to reduce bond market fragmentation and both existing
and new investors invited to participate at the reopen auction.
vi. Both the source and destination instruments are taxed at the prevailing tax rates as per the Income Tax Act.
vii. The minimum amount allowed for the destination switch bond is KES 100,000 for Infrastructure bonds (IFBs) and
KES 50,000 for benchmark bonds.
viii. The Central Bank reserves the right to accept bids in full or part thereof or reject them in total without providing
any reason.
ix. Conduct of switch auction.
The switch offer is announced through the CBK website and issued for a specific sale period. Duly completed switch
application forms must be submitted to any branch of the Central Bank in the specified tender box or through CBK
Internet Banking by 2.00pm on the auction Date and results obtained the next working day by Investors on details of
amounts payable for successful bids from Central Bank of Kenya.
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References
1. IMF and World Bank, 2001. Developing Government Bond Markets: A Handbook.

elopingGovernmentBondMarketsAHandbook.pdf
2. IMF and World Bank, 2021. Guidance Note for Developing Government Local Currency Bond Markets.

Government-Local-Currency-Bond-Markets-50256
3. National Treasury, 2020. Medium Term Debt Management Strategy (MTDS).

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