Investing in Treasury bonds in Kenya.

Treasury bonds are a wonder. Well not anymore. Here’s a quick guide to understanding and investing in treasury bonds in Kenya. Read on.

What is a treasury bond?

Let’s use an example to explain what a bond is. Let’s say you have a friend called Alex. Alex needs sh.100,000 to start a hardware business. Alex comes to you and borrows the amount.

But because you could have used the money on something else, you both come to an agreement that Alex will give you 10% per year for loaning him the sh.100,000. After 3 years, Alex will give you back the money plus the remaining interest accrued.

In this case, Alex represents the government. You as an investor give the government your money at an agreed interest per year. After the agreed period, the government gives you back the money plus the remaining interest.
Therefore, as an investor, you are giving the government your money as a loan in exchange for interest.
The government uses this money to fund development and infrastructure.

Terms you should know when investing in Treasury bonds in Kenya.

In Kenya, you can invest in bonds between one to 30 years. This period is referred to as tenor.

A coupon refers to the interest rate. Paying of interest in Kenya occurs every 6 months.

Let’s say you invest in a sh.100,000 bond at a coupon rate of 10% per annum. This means that every 6 months you’ll get sh.5,000 as interest.

Where you can buy bonds in Kenya.

There are 2 places you can buy bonds in Kenya. Either on the primary market or secondary market.

Primary market
This is where issuing of new bonds occurs or the government reopens old bonds.

Secondary market
This is where the NSE (Nairobi Securities Exchange) lists bonds that can be bought by the public.
In this market, the minimum investment is sh.50,000.

NB; Each month auctioning of bonds occurs. You can get this information on the CBK (Central Bank of Kenya)

How to buy treasury bonds in Kenya?

Here are a few requirements for investing in bonds in Kenya.

Open a CDS account.
This is a free account that you’ll use to store your securities. That is treasury bills and bonds.

Processing the CDS account will take around 7 days. After which you’ll receive an email and or text message from CBK notifying you of your CDS account number.

Here are a few other requirements. Fill out a bonds application form, and a mandate card, provide your bank details and have two signatories

You can also invest in bonds using your bank account. Although this will come at an extra fee.

Kenyans living in Kenya can also invest in bonds as long as they have an active Kenyan bank account. They can send their application via the CBK email.

Benefits of investing in treasury bonds in Kenya.

1. Bonds are a low-risk investment.
That means that they are a relatively safe investment. This is especially true for government bonds. This is because the government has never defaulted on payment.

2. Source of extra passive income.
Bonds serve as a source of extra income for investors. This is because the earnings are predetermined and do not require any extra work. As long as you have successfully subscribed for the bond, the earnings are a sure thing.

3. Bonds can serve as a retirement plan.
Let’s say you invest sh.10 million at a coupon rate of 12.8% p.a. In one year you will get around 1.28 million, that is around sh.100,000 per month. You can use this amount to cater to your living expenses.

Investing in Treasury bills 

Types of government bonds in Kenya.

There are 3 types of government bonds in Kenya. Namely:

a) Fixed coupon rate bond. – The coupon rate/ interest rate does not change.
For this rate, the minimum investment is sh.50,000.

b) Infrastructure bond – The minimum amount you can invest is sh.100,000 with the exception of the M-akiba bond whose minimum is sh.3000.
This bond is used to fund infrastructure projects like the construction of roads.
This bond has an extra benefit in that it is not taxed. That is whatever earnings you get will not be subjected to withholding tax, unlike the fixed coupon rate bond.

c) Zero coupon rate bond– This bond is sold at a discount like treasury bills.
That is this bond does not have an interest.

In a nutshell, that is what investing in treasury bonds entails. Will you be venturing into investing in treasury bonds?   


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