If you’re looking for safe and secure investments in Kenya, investing in treasury bonds and bills should be the first choice. Government securities (treasury bonds/bills) are often labeled as the safest investment option on earth because they are backed by the state.
Investing in government securities is one of the lucrative ways to expand your investment portfolio and generate passive income. By buying bonds, you’re simply loaning your money to the Kenyan government for a specified period. You receive back the principal amount plus the interest payment once the maturity is reached.
Buying government securities is easier than most people think. This article provides a simple step-by-step process to invest in treasury bonds and bills in Kenya.
Treasury Bonds vs Treasury Bills
The Kenya government, through the National Treasury, offers two forms of securities; treasury bonds and treasury bills. Here’s a preview of the differences.
Treasury bills: Treasury bills are securities that carry short maturities of 1 year or less. Because of their short maturities, treasury bills are offered at a discounted price. This means the money you’ll pay when purchasing the T-bill is below the bill’s face value. Thus, the money you’ll make on T-Bills is the difference between the discounted purchase price and the bill’s face value paid at maturity. If you choose to buy the T-bill, you must invest at least Ksh100,000.
Treasury bonds: Unlike treasury bills that have short maturities, treasury bonds have long maturities of 1 to 30 years. The government of Kenya offers different types of bonds including fixed-coupon treasury bonds, infrastructure bonds, and zero-coupon bonds. As a bondholder, you’ll receive payments every 6 months throughout the investment period and the amount you invested at maturity. The longer the maturity, the higher the interest payments by bonds. The minimum amount of money you’ll need to invest in treasury bonds is Ksh50,000.
Reasons to Invest in Treasury Bills and Bonds
Risk-free
Treasury bonds and bills offer you a secure and risk-free investment option because the full faith and credit of the government of Kenya guarantees that principal and interest payments will be paid on time. The likelihood that the government will not repay you is almost zero.
Consistent income
As a treasury bondholder, you’ll receive interest payments twice a year. You can use the income to grow your wealth and build your retirement savings.
Liquidity
Treasury bonds are transferable on the secondary markets like the Nairobi Stock Exchange. This makes your investment highly liquid.
Hedge against market turbulence
Government securities retain or increase in value even during market volatility. Thus, treasury bonds are ultimately safe haven assets.
Six-Step Guide to Invest in Treasury Bills and Bonds in Kenya
Step 1: Open a DhowCDS Account
To start investing in treasury bonds and bills in Kenya, you’ll first need to create a Central Securities Depository (CDS) account directly with the Central Bank. The CBK-CDS account is an electronic system that facilitates holdings and trading of securities. Having a CDS account provides you the opportunity to buy securities and monitor your portfolio.
It is quite easy to open a CBK-CDS account. You can complete this step via your computer or your mobile device. Here’s how to open your CSD account.
- Visit the CBK website or download the DhowCSD app. Then, click the investor portal link on the App/website.
- Proceed and click “Create account” to get started.
- Next, enter your email, preferred username, and unique password of choice. Accept legal terms and hit “start registration”.
- On the next page, select “Physical Persons” for the user type. Enter required details including name, birth date, identifier, ID number, occupation, nationality, and KRA PIN. Click next.
- Input the contact details, including postal address and phone number. Then, click next.
- For the settlement details, select the Individual Account Option and click “Next”.
- Proceed to upload the required documents including passport-sized photo, ID, and KRA pin. Hit “Next”.
- A token through your email. Input the token to verify your account.
- You’ll receive an e-mail confirming the submission of your profile. Once your request is approved by the settlement bank, you’ll receive an email notification within 48 hours.
That’s it. You can now log into your account and access your CSD account numbers. If you don’t wish to create a CDS account, you can still invest in government securities via a Kenyan commercial bank.
Step 2: Choose what to invest in/how to invest
Now that you’ve your CDS account is ready, it’s time to choose the securities to invest in and how to invest.
CBK offers treasury bills every week, with three maturities (91 days, 182 days, and 1 year). If you decide to invest in treasury bonds, you must choose one of the three maturity periods. Your decision on the maturity length should be based on the previous average interest rates and how long you’re willing to commit your money for the investment.
In contrast, treasury bonds have maturity periods ranging from 1 to 30 years. The CBK offers several types of bonds that you can invest including fixed-coupon bonds, zero-coupon bonds, or infrastructure bonds. When you decide to invest in bonds, you should check out upcoming bond prospectuses. You’ll need to consider the bond’s maturity period and the interest rates to determine the right option for you.
Infrastructure bonds are a great option because the returns from your investment are occasionally tax-exempt.
Related: How to Buy Shares at the Nairobi Securities Exchange
Step 3: Create and submit your bids
Once you’ve decided what to invest in, you’ll need to create and submit your bid via the DhowCSD platform. This step allows you to select the preferred security, the interest rate, and the amount of money you wish to invest.
On the Investor portal, click on the “Auction” to navigate through the list of all securities available for auction. Then, click “create bid” against the preferred security. A Place-New-Bid page will appear.
For the type of bid, you can place your bid either as competitive or non-competitive. After this, you’ll required to fill in the bid amount, desired rate (only applies to competitive auctions), bid broker, and source of funds.
The Central Bank requires you to specify the source of your funds, either maturing securities, salary, or others. For the “Others” option provide additional information for the information.
Proceed to accept the terms and then click “Place Bid”. Confirm the details of your bid before placing the bid. If everything is correct, place the bid. A pop-up message will appear confirming the successful submission of your bid. You’ll also receive an email notification on your registered email address.
Step 4: Obtain Auction Results
In this step, you’ll wait for CBK to release the auction results to determine whether your bid was accepted or rejected. The CBK’s Auction Management Committee (AMC) meets to consider all bids and determine the cut-off rate. The weighted average rate for accepted competitive bids is applied to non-competitive bids.
The action results are published on the CBK website and on the CBK’s social media channels including Instagram, X (formerly Twitter), Instagram, WhatsApp, and Facebook.
You can also access your auction results through the DhowCSD. This allows you to determine if your bids were accepted and the amount you’re required to pay. Remember, CBK retains the right to reject or accept your bids.
Step 5: Payment for Successful Bids
The next step is to pay for your successful bids. The payment should be done by 2 pm on Monday following the auction date. You’ll submit your payments via DhowCSD. To complete the payment, you’ll be required to provide the following details;
- CSD account number
- Amount payable
- Payment key
Successful bidders who fail to pay within the specified payment period can be suspended from engaging in future trading in government securities.
Step 6: Receive and Enjoy Maturities
Once you’ve invested in your preferred treasury security, it’s time to wait for the maturities. If you’ve invested in Treasury bonds, you’ll receive interest payments twice a year until the maturity date. Upon maturity, you’ll receive the bond’s face value and the last interest payment.
You have the option to roll over the interest payment into a new bill or bond. All you have to do is to activate the netting flag on the DhowCSD. Once the netting action is activated, any coupon payment that coincides with a new bid on the settlement date will be rolled over.
Frequently Asked Questions
Who qualifies to invest in Treasury bills and bonds in Kenya?
The bond market is currently dominated by banks, pension schemes, and corporate entities. However, individuals can also invest in government securities through the CBK. You’ll need to create the CBK-CDS account or open a client account with your commercial bank.
Can I access funds before maturity?
Yes. You can access your investment before maturity in two ways. First, you can receive your funds by rediscounting the securities. This means CBK will buy your securities back. Second, you can receive your money without rediscounting by trading the treasury bonds on the Nairobi Security Exchange.
Can Kenyans in the Diaspora invest in Treasury Bonds and Bills?
Yes. If you’re a Kenyan living abroad, you can invest in treasury bills and bonds as long as you have a Kenyan bank account. All you need is to open a CDS account with CBK.
Can I trade my treasury bond in the Nairobi Securities Exchange (NSE)?
The great thing about treasury bonds can be sold on the secondary market including the Nairobi Securities Exchange. However, treasury bills are not traded on NSE.
What is the minimum amount I require to invest in Treasury bills and bonds in Kenya?
If you’d like to buy government securities in Kenya, you’ll need a minimum of Ksh100,000 for the T-bill and a minimum of Ksh50,000 for the treasury bond.
Concluding Thoughts
Government securities are ultimately an attractive investment option today. Both T-Bill and treasury bonds are secure because they’re guaranteed by the government. Securities provide you with an excellent opportunity to diversify your investment portfolio. It’s always important to conduct thorough research and seek professional financial to select the securities most suitable for your financial goals.
