How To Invest In Treasury Bonds In Kenya (2024)

This article dwells on how to invest in Treasury Bonds in Kenya. Investing in Treasury bonds in Kenya is one of the straightforward ways to grow your money. They are like loans you give to the government, and in return, they pay you back with interest.

So, how do you go about it? Read on as this guide explores how you can get started with investing in Treasury bonds in Kenya.

What are Treasury Bonds?

Treasury bonds also known as T-Bonds, refer to debt securities issued by the government through the Central Bank of Kenya on behalf of the Treasury. These bonds are a form of government debt that allows the government to raise funds for various purposes, such as financing budget deficits, infrastructure projects, or other government expenditures. These bonds are considered low-risk investments because they are backed by the full faith and credit of the government.

Types of Treasury Bonds

• Fixed Coupon Bonds: These are bonds that pay a fixed interest rate (coupon rate) over the life of the bond. The interest is paid semi-annually, and the principal is repaid at maturity.
• Infrastructure Bonds: Bonds issued by the Kenyan government specifically to finance infrastructure projects. The proceeds from these bonds are earmarked for funding projects such as roads, energy, and other public infrastructure developments.
• Zero Coupon Bonds: These are fixed-income securities that do not pay periodic interest but are issued at a discount to their face value. Investors profit by purchasing these bonds at a lower price and receiving the full face value at maturity.

Minimum Treasury Bonds You Can Buy

If you are interested in investing in Treasury bonds in Kenya, a minimum investment of Ksh 50,000 is required.

Difference between Treasury Bonds and Treasury Bills

Treasury bonds (T-bonds) and Treasury bills (T-bills) are both types of government-issued debt securities, each with distinct characteristics. As we have seen, T-bonds have longer maturities, typically ranging from 1 to 30 years, and pay periodic interest to bondholders. The interest rate is fixed at issuance, and investors receive both interest payments and the principal amount at the bond’s maturity. T-bonds are auctioned to the highest bidders in the market, and their prices can fluctuate based on changes in interest rates, influencing the overall yield.

On the other hand, Treasury bills (T-bills) have shorter maturities, typically ranging from 91 days to one year. Unlike T-bonds, T-bills are sold at a discount to their face value, and investors do not receive periodic interest payments. Instead, they earn a return by receiving the face value at the bill’s maturity. T-bills are also auctioned, and their yields are determined by the difference between the purchase price and face value. While T-bonds are more suitable for investors seeking long-term income with periodic interest payments, T-bills are favored by those seeking short-term, low-risk investments with a simple structure.

How To Invest In Treasury Bonds In Kenya

Step 1: Open a CDS Account

To begin investing in Treasury bonds, start by opening a free CDS (Central Depository System) account with the Central Bank of Kenya. This account, which serves as a registry for government securities, requires a one-time setup. Obtain a mandate card from the Central Bank, complete it with details such as contact information and your commercial bank account, and have it endorsed by two signatories from your bank. A sample mandate card can be downloaded from the Treasury website. Submit the mandate card along with a certified passport-sized photograph and a clear copy of your National ID, passport, or alien certificate for identity verification.

Requirements for CDS Individual Account

These specific requirements must be followed by individual CDS account holders:

• Single or joint CDS accounts are allowed, but no minor accounts are permitted.
• Applicants must complete the CDS accounts specimen signature mandate card obtained from designated Central Bank of Kenya branches or currency centers.
• Completion of the card requires block letters, neatness, and clarity, with names matching identification documents and no alterations/errors.
• The card must not be folded or disfigured.
• Signatories must sign the card in the presence of a designated CBK Officer or Authorized Agent.
• Submission of the completed card(s) should include a recent colored passport-size photograph certified by the applicant’s bankers, not stapled or glued to the card.
• The original and a clear copy of the National Identity Card, valid passport, or alien certificate for verification (copies retained by CBK) are required.
• Two signatories from the applicant’s bankers must sign and stamp the card to confirm bank account details.

Corporate Entities CDS Account Requirements

Corporate entities opening CDS accounts must adhere to the following requirements:

• All authorized signatories must complete the specimen signature mandate card, available at designated Central Bank of Kenya branches or currency centers.
• The card(s) should be filled out in BLOCK LETTERS, neatly, and clearly, with names matching the identification document.
  • No alterations or errors are allowed, and the card must remain unfolded and undamaged.
  • Signatories must sign the card in the presence of a designated CBK Officer or Authorized Agent.
• Upon completion, applicants must personally submit the completed card(s) along with:
  • One recent colored passport-size photograph, with the reverse side certified by the applicant’s bankers (not stapled or glued).
  • Originals and certified copies of various documents, including certificate of incorporation, valid license or registration certification, board resolution minutes, national identity cards or passports for authorized signatories (including work permits for foreigners), audited reports for the last financial year, and tax exemption certificate (if applicable).
• Corporate seals must be embossed on all CDS cards.
• Two signatories from the applicant’s bankers (commercial bank or financial institution) must sign and stamp the card to confirm bank account details.

Step 2: Choose Your Investment

Now, decide how you want to invest in Treasury bonds. These bonds last from 1 to 30 years, and as we had seen earlier, there are different types: Fixed Coupon Bonds, Infrastructure Bonds, and Zero Coupon Bonds.

To start, keep an eye on upcoming bond prospectuses on the Government Treasury Website which detail bond options, durations, and interest rates. Understand when you get interest payments, the final repayment, and any applicable taxes.

For popular bonds, prospectuses may include amortization, spreading repayments over time, and reducing future interest payments as your investment with the Treasury decreases. This knowledge helps you make smart investment choices.

Step 3: Fill Out an Application Form and Submit

Once you’re prepared to invest, the next step is to fill out a Treasury bond application form. This form captures essential details about the bond you wish to purchase, such as the issue number, duration, and the amount you want to invest. Additionally, it collects personal information, including your name, telephone number, CDS account number, commercial bank account number, and whether the funds are from a local or offshore source.

On the application form, you will encounter two rate options. If the bond has a pre-determined coupon rate in the prospectus, choose the Non-Competitive/Average Rate. If the coupon rate is market-determined, you can select either the Interest/Competitive Rate or the Non-Competitive/Average Rate.

Investors who opt for the Interest/Competitive Rate bid on the bonds by submitting desired coupon rates. The Central Bank decides which bids to accept, using an average of those rates to determine the rate for Non-Competitive/Average Rate investors.

The final section on the application form is Rollover Instructions, allowing investors with maturing bills and bonds to reinvest returns easily in government securities.

You can access a sample Treasury Bond Application Form on the Treasury Website.

Note that the bond prospectus specifies the sale period dates, and you must submit your application form to the Central Bank’s head office or one of its branches by 2 pm on the Tuesday of the last week of the bond’s sale period.

Step 4: Auction Results and Payment

After the Central Bank’s Auction Management Committee evaluates bids at 4 pm on auction days, results are published on Treasury Mobile Direct, X formerly Twitter, and the CBK website. While investors usually receive bonds in the applied amount, the Central Bank may issue a lower amount.

After the auction, contact the Central Bank or its branches to confirm your application’s success and determine the payment owed. Timely communication is crucial. Payments must be made by 2 pm on the following Monday or, in case of a public holiday, the next Tuesday. Stay informed and act promptly to secure your investment.

Step 5: Making Payments

Payments for successful Treasury bond applications close on the following Monday at 2 pm. Investors can use cash or banker’s cheques for amounts under Kshs. 1 million and opt for a KEPSS transfer for larger sums. Failure to make timely payments may result in restrictions on future government securities investments. Ensure prompt payment to retain eligibility for future opportunities.

Step 6: Proceeds after Maturity

After investing in a Treasury Bond, you will be receiving semiannual interest payments in your commercial bank account. Upon maturity, you get the final interest payment and the bond’s face value. Alternatively, you can roll over your investment into a new issue by completing a form and submitting it to the Central Bank before the sale period ends. The Central Bank doesn’t deposit the face value but sends refunds from the new investment. Consider your options for a smooth transition at maturity.