Wealthy investors pocketed massive gains of Sh57.6 billion in the first quarter of 2025 by trading Treasury bonds on the Nairobi Securities Exchange (NSE), cementing government paper as a top-performing asset ahead of stocks and real estate.

The profits came from selling bonds at a premium in the secondary market, driven by a sharp rise in demand for high-interest infrastructure bonds. This surge was fueled by a decline in returns from newly issued government securities, making older bonds—especially those with higher yields—more attractive.

By contrast, capital gains in the stock and property markets remained modest, ranging from 1.7% to 6%, despite a Sh500 billion gain in investor wealth at the NSE last year.

This is a sharp reversal from the same period in 2024, when bondholders suffered a Sh2.9 billion loss. At the time, they were forced to sell at discounts as new bond issuances came with higher interest rates, making older bonds less appealing.

According to Capital Markets Authority (CMA) data, the spike in profits was matched by a record level of trading activity:

• Sh724.3 billion worth of Treasury bonds were traded in Q1 2025,

• These had a face value of Sh666.7 billion,

• Highlighting the premium pricing sellers enjoyed.

Why Bond Prices Soared

Bonds are typically issued at a face value of Sh100, but when traded in the secondary market, their prices vary depending on interest rates and investor demand. When new bond yields fall—often due to monetary policy changes—existing bonds with higher rates become more valuable.

That’s exactly what happened this year. The Central Bank Rate (CBR) dropped from 13% in August 2024 to 10% by April 2025, causing yields on new government securities to fall.

• Bonds floated in Q1 2025 offered effective yields of 13.8% to 15.7%,

• Down from 16.5% to 18.8% in the same quarter last year.

This decline led to a surge in bond prices, especially for infrastructure bonds (IFBs) which are tax-free. Four IFBs issued between January 2023 and February 2024 have been trading at Sh107 to Sh122, well above their Sh100 face value.

In short, investors who bought into high-yield government bonds last year have now cashed out at a premium, thanks to falling interest rates and strong market demand—making billions in capital gains while other asset classes lagged behind.