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How to Make Money Buying Treasury Bonds in Kenya 2024

treasury bonds in kenya

If you’re considering investing in treasury bonds but are not sure if you’re on the right track, we’ve got you covered! Here, we will provide an overview of treasury bonds in Kenya. 

We’ll discuss their current rates, how they compare to other investment options, and how to buy them. With this information at your fingertips, you’ll be able to determine whether they are a good fit for your investment portfolio.

What are treasury bonds in Kenya?

A treasury bond is a type of debt-based investment, where you loan money to a government in return for an agreed rate of interest.

treasury bonds in kenya

Governments use them to raise funds that can be spent on new projects or infrastructure, and investors can use them to get a set return paid at regular intervals

In Kenya, there are two primary types of government investments available: Treasury Bills and Treasury Bonds. As a law-abiding citizen above the age of 18, you are eligible to participate in these investment opportunities.

  1. Treasury Bills (T-Bills): These are short-term investments with a maturity of less than one year. In Kenya, T-Bills are available in three durations: three months, six months, and one year.
  2. Treasury Bonds: Bonds have a longer maturity period, typically exceeding one year. Benchmark bonds in Kenya include durations of 2 years, 5 years, 10 years, 15 years, 20 years, and 25 years.

How to Get Started with Treasury Bonds in Kenya

In this guide, I will walk you through the process of purchasing treasury bonds in Kenya.

treasury bonds in kenya

With the potential for attractive returns, treasury bonds offer a secure investment opportunity. Let’s get started!

Step 1: Meeting the Requirements

To buy treasury bonds in Kenya, you need to meet certain requirements. These include:

  • Having a copy of your passport photograph
  • Original National ID or Passport
  • Having a bank account in Kenya 

Step 2: Visit the Central Bank of Kenya (CBK)

Visit the nearest CBK branch to open a CDS (Central Depository System) account with the Central Bank of Kenya. This account serves as a record of government securities ownership This account will allow me to participate in treasury bond trading. 

Step 3: Fill Out the Mandate Card

Obtain a mandate card from the Central Bank and ensure that you complete it in clear block letters.

treasury bonds in kenya

The mandate card requires you to provide your contact information and details regarding your commercial bank account.

Step 4: Visit your Bank for Verification

Take the filled mandate card to the bank for verification, from here the bank appends its stamp and signatures of two authorized signatories.This step satisfies the CBK’s requirement of having a bank account with the specified bank.

Step 5: Submit the Documents to CBK

Return to the CBK and submit the verified mandate card along with the required documents such as coloured passport sized photo of yourself, certified and stamped by a representative from your bank In addition to this, you will be required to fill out the email indemnity agreement which requires a witness and submit a clear copy of KRA PIN, your national ID, passport or alien certificate.

You may also be required to register for CBK-Treasury Mobile Direct (TMD). This will allow you to access specific mobile services on government securities via the USSD *866#.

The CBK will then process your application within approximately one to two weeks.

Step 6: Start the Bond Trading Journey

Once the CDS account is open, you are ready to dive into treasury bond trading. This means you can actively participate in auctions and transactions to buy treasury bonds.

How to bid for Treasury Bonds in Kenya

After opening a CDS account, you can submit your bid to the Central Bank for the desired Treasury bond. Bidding involves expressing your interest in purchasing bonds and specifying the amount you are willing to invest. 

You have to fill an application form which you will collect from the CBK website

treasury bonds in kenya

The bond application details you will include are the indication of the bond you want to buy such as Issue Number, duration and the face value amount you want to invest

Other details include personal information like your full name, phone number, CDS account, bank account number specified in the mandate card and whether the funds you’re investing are coming from a local or offshore source

You have the option of making a competitive or non-competitive bid. 

Competitive bids require stating the interest rate at which you are willing to lend money to the government, while non-competitive bids do not involve specifying an interest rate.

For instance if you plan to make an investment below 20 million shillings, you can opt for non-competitive bidding. For amounts above 20 million, you need to specify the rate at which you are willing to lend the government your money.

The Treasury Bond Auction Period

Once the bidding period ends, the Central Bank conducts an auction.

treasury bonds in kenya

During the auction, the government reviews all submitted bids and determines the allocation of Treasury bonds in Kenya. 

If you made a non-competitive bid, your allocation is guaranteed up to a specific amount. However, for competitive bids, the interest rate quoted plays a vital role in determining the allocation. 

Successful bidders are notified via their CDS accounts or other designated communication channels.

Let’s say you have invested 100,000 shillings, like an average citizen. The auction period usually lasts for 4 to 5 days. After the auction closes, the government will review the bids. 

Since you bid non-competitively (meaning your investment is below 20 million shillings), the government will prioritize non-competitive bids first. 

They will accept bids that match their specified rate until they reach their desired target amount. If there is a surplus, they will quote an average rate to allocate the bonds to other bidders. 

Those who bid above this average rate will not receive the bond in this auction but can try again next time.

How To Pay for Treasury Bonds in Kenya

After being allocated Treasury bonds, it is time to make the payment.

treasury bonds in kenya

The Central Bank provides detailed instructions regarding the payment process, including the deadline and acceptable modes of payment. 

You can typically make payments through electronic fund transfers, direct debit, or other designated methods. Ensure that you adhere to the given timelines to secure your investment successfully.

Getting Your Money Back

At maturity, which is the end of the bond’s tenure, you can redeem your investment.

treasury bonds in kenya

The Central Bank automatically credits the principal amount to your CDS account. 

You have the option to reinvest the principal in other Treasury bonds in Kenya or withdraw the funds into your linked bank account.

Below are key terms to familiarize with related to treasury bonds in Kenya:

  1. Coupon: The coupon refers to the interest rate that the government pays you for using your money. For example, if you lend the government Ksh 100,000 at a ten percent coupon rate, you would receive Ksh 10,000 annually. The interest is usually paid semi-annually, around June and December.
  2. Paper: The term “paper” is used to refer to the bond itself. For instance, a five-year bond is often called a “five-year paper.” It is a commonly used term, particularly in the secondary market.
  3. Secondary Market: Once you have purchased a bond directly from the primary issue, which is the government through the Central Bank of Kenya (CBK), you can trade it in the secondary market. If you find the need to liquidate your bond before its maturity, you can approach a market intermediary, such as Jenga’s Capital, to sell the bond for you.
  4. Central Bank: The Central Bank of Kenya (CBK) acts as the government agency responsible for facilitating the issuance of bonds. When the government requires funds for projects like the Nairobi Expressway or the Standard Gauge Railway (SGR), they work with the Treasury Ministry, which in turn consults the CBK to determine the most cost-effective way to raise the required funds.
  5. Bid: The bid signifies that you are willing to lend a certain amount of money to the government in exchange for an IOU. In today’s digital era, bids are typically placed through your Central Depository System (CDS) account, a digital platform.
  6. Lien: Lien refers to the right to retain possession of property belonging to another person until a debt owed by that person is repaid.
  7. Collateral: Collateral is an item of value pledged to secure a loan. It acts as a guarantee for lenders. If the borrower defaults on the loan, the lender has the right to seize and sell the collateral to recover their losses.

Frequently Asked Question about Treasury Bonds in Kenya

  • Is there a way to apply for CBK- CDS online? 

NO

  • How long does a CBK- CDS account application take? 

To be honest more than 2 months contrary to what they indicate on there website ( within seven working days )

  • Can Payments be made via Mpesa 

No you can’t pay through MPESA but transfer money to your bank then send to CBK through an RTGS transfer

  • Is there a time frame of making a deposit without loosing the CDS account 

Yes If you don’t invest in a bond within a year, your CDS account becomes inactive and you’ll have to reapply again. 

  • What if CBK doesn’t pick my call while following my application status? 

Don’t give up calling CBK for the documents. After multiple attempts someone will pick up your call 

  • Can you open a joint CDS account with friends? 

Yes so long as you each fill in the mandate form & provide the 7 documents listed

  • Can foreigners invest in Kenyan bonds? 

Yes, so long as you open a CDS account through Kenya commercial banks

  • What is a tap sale ? 

A tap sale is a bond resale from a previous issue. The bond is offered at the original average weighted coupon rate, maturity, face value but sold at current market price

  • How are bond interests paid?

Bond interest is typically paid twice a year. The amount will usually be sent to your bank account.

  • How do you pay for TBILLs?

You can do online transactions then you don’t have to walk to your bank to do the transfers, so check with your bank.

  • Can you sell your bond back to CBK?

There is an option to sell Treasury bonds back to the Central Bank of Kenya (CBK) as a last resort when you are unable to find buyers in the secondary market. This option is known as the CBK’s buyback facility.

In situations where you cannot find buyers for your bonds in the secondary market, the CBK acts as a buyer of last resort. However, it’s important to note that utilizing the buyback facility may come with certain penalties. The CBK may charge a penalty fee ranging from 3% to 6% of the bond’s face value. This penalty fee is designed to discourage investors from utilizing the buyback option unless it is necessary.

  • How do bonds compare with other investment options like shares, Sacco, banks? 

When comparing government bonds to other investment options several factors come into play, including safety, guaranteed returns, and other considerations:

  • Safety: Government bonds are generally considered a safer investment option compared to shares and Sacco investments. This is because government bonds are backed by the government’s creditworthiness and ability to repay its debts.Governments have the authority to raise taxes or print more money to fulfill their financial obligations. On the other hand, shares can be volatile and subject to market fluctuations, while Sacco investments may carry higher risks depending on the Sacco’s financial stability.
  • Guaranteed Returns: Treasury bonds in Kenya  often provide guaranteed returns in the form of regular interest payments, which are predetermined at the time of issuance. This can be advantageous for risk-averse investors who seek stable and predictable income.In contrast, shares and Sacco investments do not typically offer guaranteed returns. The returns from shares are dependent on the performance of the underlying company, which can fluctuate. Sacco investments may offer variable returns based on the Sacco’s profitability. Bank investments, such as fixed deposits, usually provide a fixed interest rate for a specific period but may not offer the same level of guaranteed returns as government bonds.
  • Liquidity: Government bonds and bank investments often provide relatively higher liquidity compared to shares and Sacco investments. Government bonds can be traded in the secondary market, offering an avenue for selling before maturity.Bank investments, such as fixed deposits, may have early withdrawal options, although this may come with certain penalties. Shares and Sacco investments may have limited liquidity, depending on market conditions and the availability of buyers.
  • Risk Tolerance: The choice between government bonds, shares, Sacco investments, and bank options ultimately depends on an individual’s risk tolerance, investment goals, and time horizon.Conservative investors may prefer the safety and stability of government bonds, while those with a higher risk appetite may be drawn to the potential higher returns and growth opportunities of shares and certain Sacco investments.
  • Can treasury bonds in Kenya be used as collateral?
    Yes, Government bonds can be used as collateral for obtaining loans. In such cases, the bondholder can approach the regional registrar, often referred to as the CDS (Central Depository System) registrar, and request to have the bond stamped as a lien.By doing so, the registrar acknowledges that the bond is being held as collateral.With the stamped bond, the bondholder can then approach a local bank or financial institution and use it as collateral to secure a loan.

 

  • What are the two ways of buying treasury bonds in Kenya?
  1. Investing through a Commercial or Investment Bank as a Nominee: Individuals and corporate bodies can invest in Treasury bonds by becoming nominees of a commercial bank or investment bank in Kenya. In this method, the bank acts as an intermediary and facilitates the bond investment on behalf of the investor. The bank will handle the account opening process with the Central Bank of Kenya (CBK) and manage the investment.
  2. Direct Investment through the Central Bank:  If you hold a bank account with a local commercial bank in Kenya, you have the option to invest directly in Treasury bonds through the Central Bank. This method allows you to bypass additional fees that may be associated with investing through a nominee bank.
  • Where can I get the Treasury request to bid information?

The government announces the Treasury bond offerings and requests for bids through various channels. 

  1. Local Dailies: The government often publishes details about the Treasury bond offerings, including the terms and conditions, in local newspapers. These publications serve as a source of information for potential investors.
  2. Media Houses: Information regarding Treasury bond offerings and bid requests can also be found through media houses. News outlets and financial publications may report on upcoming auctions and provide relevant details to the public.
  3. Central Bank of Kenya (CBK) Account: If you have a CDS account with the CBK, you can access auction offers directly through your account. Logging into your account will provide you with access to information about the available bonds and the bidding process.
  4. Market Intermediaries: Market intermediaries, such as stockbrokers and investment firms, also disseminate information about Treasury bond offerings. You can contact them directly, either by visiting their offices, calling them, or sending an email, to inquire about the available bond offerings and request bidding details.
  • How often do government bonds pay?

Every six months

  • How  do i invest government bonds if i dont have 100k?

Register for M-Akiba by dialing *889# then you can invest with a minimum investment of Kshs.3,000

  • Can you use your Stock CDS Account to invest in Bonds? 

No, for investing in bonds, you would need a CBK (Central Bank of Kenya) CDS (Central Depository System) account specifically, rather than a Stock CDS account. The CBK CDS account is a digital platform provided by the Central Bank of Kenya to facilitate the holding and management of government securities, including bonds.

  • Which one has more returns between Tbills & Tbonds? 

Generally, Treasury bonds (T-bonds) tend to offer higher returns compared to Treasury bills (T-bills). This is because T-bonds have longer maturities, typically ranging from 2 to 30 years, while T-bills have shorter maturities, typically ranging from a few days to one year.

Final thoughts on Treasury Bonds in Kenya

In conclusion, investing in Treasury bonds in Kenya can be a lucrative opportunity for individuals seeking stable returns and a secure investment avenue. By following the step-by-step process of opening a CBK CDS account, submitting bids, participating in auctions, earning interest, and redeeming investments, investors can navigate the bond market with confidence. 

Treasury bonds offer safety, guaranteed returns, and potential tax benefits, making them an attractive option. It is crucial to stay informed, conduct thorough research, and seek professional advice to make informed investment decisions. Start your journey into Treasury bond investments today and pave the way for a financially secure future.

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Written by Kigen

Written by Kigen

I have a Passion in Helping Kenyans Who Mean Business with Design & Marketing.
Learn More About Me >>[HERE]<<

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