Nairobi Securities Exchange Sees Explosive Bond Activity as Investors Shun Equities

Nairobi — Activity at the Nairobi Securities Exchange (NSE) has surged, not in stocks, but in the secondary government bond market, where turnover has climbed to record levels as investors seek safer, high-yield returns amid stock market volatility. 

Record Bond Turnover as Investors Rebalance

Trading in government bonds on the NSE has hit an unprecedented KES 2.7 trillion, driven by heightened demand from institutional and retail investors alike. Market commentators attribute this surge to persistent investor interest in fixed-income securities that offer favourable yields and perceived risk-free returns relative to equities. 

The rise in bond turnover reflects both long-term infrastructure bonds and shorter-dated Treasury instruments changing hands on the secondary market as investors rebalance their portfolios. Bonds issued in recent years with attractive coupons remain heavily traded, reinforcing the fixed-income segment’s dominant position within capital-market activity. 

Government bonds listed on the NSE provide medium- to long-term interest-bearing instruments, with semi-annual payments and principal repayment at maturity, making them a stable avenue for predictable returns. 

Drivers of the Shift

Several factors explain the pronounced shift toward government paper:

• High yields: Government securities, particularly infrastructure bonds that were issued with double-digit coupons, have become attractive to risk-averse investors compared with the more volatile equity segment. 

• Institutional demand: Banks, pension funds and other institutional investors have increased their holdings of government securities as part of balance-sheet rebalancing, seeking stable returns while managing liquidity and risk. 

• Equity market conditions: Equity turnover and trading interest have softened at times, partly influenced by broader economic factors and investor caution, leading many to favour fixed-income instruments. 

The “Crowding Out” Concern

While the surge in bond trading delivers robust activity to the fixed-income market, economists warn of potential negative side effects on the broader economy.

When banks and major financial intermediaries redirect capital into government debt, credit available for businesses — especially small and medium enterprises (SMEs) — can shrink. This dynamic, known as “crowding out,” occurs when the state competes for credit and offers yields that smaller private-sector borrowers cannot match, incentivising lenders to prefer sovereign over corporate lending. Historically, such trends have been associated with tighter private lending conditions and challenges for SMEs seeking finance. 

Critics argue that while robust bond activity may bolster investor portfolios and deepen Kenya’s fixed-income market, it can stifle private sector growth if commercial banks prioritise government debt over loans to businesses that drive employment and innovation.

Market Implications

The record bond turnover underscores the growing sophistication and depth of Kenya’s capital markets, positioning bonds as a core driver of NSE activity even as equities ebb and flow with broader economic sentiment. 

However, policymakers and market participants face a balancing act: supporting vibrant fixed-income markets while ensuring credit flows to the private sector remain healthy to underpin long-term economic expansion. The evolving investor landscape suggests that the NSE’s heartbeat may increasingly be felt first in bonds, with implications for capital allocation across the Kenyan economy.