How to Invest in Treasury Bonds in Kenya

Investing in government treasury bonds in Kenya is a long-term and secure investment. Treasury bonds are regulated by the Central Bank of Kenya (CBK). Treasury bonds in Kenya gains some interest every six months until they mature. If you want to invest in government treasury bonds, it is best that you keep checking CBK treasury bonds on offer.

Treasury bonds in Kenya are predictable since they have a fixed rate that is set during the auction. You can invest in government bonds in Kenya as an individual or corporate and keep earning interest until the bond matures. In some instances, the National Treasury issues tax-exempt bonds. You can invest in treasury bonds directly with the CBK if you have a bank account with a commercial bank to avoid extra charges.

How to Buy Government Bonds in Kenya

To invest in treasury bonds Kenya 2021, below is the procedure.

1. Open a CDS Account Kenya

The first step is usually opening a CDS account Kenya which the CBK uses to track investment in government securities. To open a CDS account Kenya, you must have a bank account with a commercial bank. Once you have an account with a commercial bank, you can collect a mandate card from the CBK or its branches. Fill the mandate card in block letters. With the CDS account, you can invest in multiple treasury bills and bonds.

Some of the details that you need to fill in the mandate card include your bank account details and contact details. You will need signatories from your commercial bank to ascertain that the information you provided is true. You can access the service by sending an SMS with the word Register to CDS code Kenya 22372. Once you have the CDS account, you can start using the CBK USSD code *866# to access the account.

Requirements for CBK CDS Account Opening

To open Central Bank of Kenya CDS account, you need to provide:

  • An original and copy of your ID card
  • Recent colored passport size photograph
  • Specimen signature on the mandate card
  • The mandate card should be filled in block letters
  • Names on the mandate car should appear in the same order as on the ID card
  • The applicant must be 18 years old or above

M-Akiba is a Government of Kenya issued retail bond. M-Akiba registration, trading, settlement is done via mobile phone by dialing USSD code *889#. Maximum investment per account / per day – Kshs. 140,000. It is open to Kenya’s citizens who have attained legal adult age of 18 years and are in a possession of a mobile money enabled phone, a duly registered line and a valid National Identity card.

Who is Eligible to Invest in Treasury Bonds?

  • Individuals or corporate bodies who have accounts in local commercial banks.
  • Individuals or corporate bodies who have an account in a local bank but invest as nominees of investment banks or commercial banks.
  • Individuals or corporate bodies with CDS accounts in the Central Bank of Kenya

2. Determine What You want to Invest In

Once you have a CDS account CBK, you need to determine for how long you want to invest in government bonds Kenya. The treasury bonds on offer Kenya will help you determine what to invest in, whether it is CBK treasury bills or bonds. Some of the bonds that you will find in the auction include:

  • Fixed Coupon Treasury bonds. Their interest rates do not change throughout the period until the bond matures. Therefore, the semiannual interest rates will be the same.

  • Infrastructure bonds. These bonds are used by the government for infrastructural development. Returns from these types of bonds are exempted from taxation.

  • Zero-coupon bonds. They are similar to treasury bills. They are sold at discounts and do not attract interest rates and are only available for a limited time.

Treasury bonds Kenya interest rates are fixed and are usually determined during the auction. You need to keep on checking for treasury bonds on offer in Kenya to invest in and see their coupon rates semi-annually. The coupon rate is the interest that you receive after every six months. The government can also decide to amortize the bond to reduce its burden when the bond matures. It means that the government will be paying the amount due in portions until it is all paid out.

3. Complete an Application Form

You will then need to fill in the Treasury application form. You will need to specify the kind of Treasury bond you wish to invest in, the amount you want to invest and for how long. You will also need to provide information about yourself such as your name, telephone and the CDS account number with the respective commercial bank account number. You will also need to state if the amount you wish to invest is sourced locally or offshore.

You will then need to decide on the percentage to use to determine your semiannual interest payment. In case the coupon rate of the bond is predetermined, then select non-competitive average rate. If the market determines the coupon rate, you should choose Interest/Competitive rate or Non-competitive/Average Rate. It is possible to reinvest the money once the bond or bill has matured.

4. Receiving Auction Results

The Central Bank’s Auction Management Committee (AMC) considers all the received bids to determine the cut off rate. It then publishes the results in newspapers and other platforms.

The applicants are required to visit the CBK or its branches to determine if their applications were successful. They also get to know how much they owe. Applicants are advised to visit the CBK to understand what will be their payment. Then they must make the payment on the following Monday and in case it will be a holiday, then on next day, Tuesday.

5. Payment

The payment period deadline is usually on the following Monday at 2 pm. An investor can make the payment in the form of cash or a banker’s cheque if the amount is less than one million Kenyan shillings. If the amount is larger than 1 million, then they should make the payment through the Kenya Electronic Payment and Settlement System (KEPSS).

6. Maturity of the Bond

The investor receives interest returns semi-annually through their commercial bank account. Once the bond has matured, he then receives the remaining interest payment and the amount he or she had invested. However, an investor may opt to reinvest the amount in the upcoming issue. To do so, they are required to fill a rollover application form before the sale for that bond expires.

Alternatives to Investing in Government Securities in Kenya

Apart from investing in government securities like treasury bills and bonds in Kenya, you can also invest in bitcoin in Kenya as an alternative. Investing in treasury bonds Kenya comes with currency risks like interest rate risk, opportunity costs and inflation. For example, some inflation rates can wipe out all your returns from the treasury bonds. It is because often attract the low level of returns. Also, when you invest in treasury bonds Kenya, you lose the opportunity to invest in other investments.

Investing in virtual currency like bitcoin is the best trade that one could have done in the past and even in the coming decade. It is because the Kenyan shilling tends to inflate a whole lot more than the dollar. When buying or selling bitcoin, you can use dollars to avoid losses due to currency inflation.

You can diversify risks by investing in bitcoin. This will help you lower the opportunity cost for not investing in other investments apart from the treasury bonds Kenya.

Final Thoughts on How to Invest in Treasury Bonds in Kenya

Investing in treasury bonds comes with many benefits such as safe, high interest and predictable returns. With M-Akiba, you can invest as low as Ksh 3,000 using your mobile phone. Make sure to also invest in virtual currencies like bitcoin to reduce the opportunity cost for investing in government securities only. This way, you can minimize currency risks.

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Research: Vincent Nyoike

Vincent is a writer with an interest in finance, business, technology and health niche. He holds a Bachelors degree in Applied Statistics with computing. Read more about Vincent and see our complete editorial team at FiFi.