How to Invest in Treasury Bonds in Kenya

Investing in government treasury bonds is a long-term and secure investment in Kenya. 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.

Government 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.

M-Akiba bonds is a government treasury bonds in Kenya that you can invest in using your mobile phone. With M-Akiba, you can invest as low as Ksh 3,000 with an increment of Ksh 500. M-Akiba bond is issued by the National Treasury of Kenya through Central Depository Settlement Corporation (CDSC), Nairobi Securities Exchange (NSE), the Central Bank of Kenya and Mobile Network Operators.

Advantages of Treasury Bonds in Kenya

  • Investing in treasury bonds in Kenya has little or no default risk.
  • Infrastructure bonds such as M-Akiba are exempt from withholding taxi.
  • You can sell your bonds on the Nairobi Securities Exchange if you want to leave the market.
  • Treasury bonds returns are predictable and consistent (every 6 months).
  • You can invest in treasury bonds for retirement through long term bonds that can go up to 30 years.

Disadvantages of Treasury Bonds in Kenya

  • The minimum investment of KSh 50,000 can be too much for low income earners (However, note that M-Akiba bonds start at Ksh 3,000).
  • If you have invested in long term bonds (e.g. 30 years), you will have to wait even if you want to sell them before maturity.
  • Demand and supply from investors can affect interest rate.
  • Although you can sell your bonds at the NSE, their prices are not protected. You may make less than your initial investment depending on price movement.

Can Kenyan government default? Governments rarely default on their sovereign debt, when the government is either unable or unwilling to repay its bondholders. Countries that have defaulted in the past include Zimbabwe, Argentina, Russia, and Lebanon. Although Kenya is experiencing rising debt levels, the country has a favorable debt structure, according to Fitch Ratings.

How to Buy Government Bonds in Kenya

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

1. Open a CDS Account Kenya

A CDS account is simply an account that the Central Bank of Kenya uses to record the ownership of your securities and your transaction history.

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

How to Buy M-Akiba Bonds

M-Akiba is a Kenyan government retail bond. To register for M-Akiba, you need to be a Kenyan citizen and be 18 years or above and dial *889# using your Airtel or Safaricom number. You must also have a mobile money wallet such M-Pesa and a valid National ID. Maximum investment per account / per day – Kshs. 140,000.

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.

Treasury bonds in Kenya and the Nairobi Securities Exchange: Treasury bonds in Kenya are listed on the Nairobi Securities Exchange (NSE). This means you can sell your bonds before maturity on the NSE.

Alternatives to Investing in Government Securities in Kenya

Apart from investing in treasury bills, bonds and securities in Kenya, you can also invest in bitcoin in Kenya as an alternative. Investing in treasury bonds in Kenya comes with currency risks like interest rate risk, opportunity costs and inflation. For example, Kenyan shilling inflation rates can significantly reduce your returns from the treasury bonds. Treasury bonds have low returns on investment. Inflation may erase even your little return. Also, when you put all your investment in treasury bonds Kenya, you lose the opportunity to invest in other investments such these investments that pay monthly income in Kenya.

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 selling bitcoin in Kenya, you can set your price in dollars to avoid losses due to currency inflation.

You can therefore 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 in Kenya.

Final Thoughts on How to Invest in Treasury Bonds in Kenya

Investing in treasury bonds comes with many benefits such as safe, consistent 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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Vincent is a writer and researcher with an interest in finance, banking, startups, and remittance. He holds a Bachelors degree in Applied Statistics with computing. He founded Nexin Startups, an online platform offering startup advice to investors and entrepreneurs. Read more about us and our authors.