How to Buy Treasury Bonds, Notes and Bills In Kenya

Ksh 1000 notes

Before the government settles for a loan from China, it will resort to public borrowing by issuing, treasury bonds, treasury bills and treasury. These are typically financial instruments, representing a loan made by companies, municipalities, states, and sovereign governments to the public to finance projects and operations.

The difference between the three is the maturity time. Treasury bills mature in a year or less, treasury notes have maturities from two to 10 years, while treasury bonds have maturities of greater than 10 years, with all paying interest semi-annually, offering a great savings option for small to medium households.

Among the common platform rolled out by the government to facilitate this process by the public is M-Akiba. Central Bank has recently rolled out a mobile platform, through which retail investors can apply for and trade in government securities eliminating friction in the current market infrastructure.

How does one trade in these government securities?

1. Open a Central Depository Account

As a bank is to your cash, so is the central depository to your securities. Opening an account is free of charge. One can visit the Central Depository Corporation along Kimathi street, which is a licensed body by CBK to open one. Through this account, CBK which is the regulator is able to monitor and keep track of transactions and government securities held.  You can open this account as an individual or as a corporate, in which you can trade in multiple securities if you are a first-time investor.

2. Make up your mind on how you want to invest in

As per CBK, there are several types of securities that are generally made available, most common being, Fixed coupon Treasury bonds, which means that the interest rate associated with the bond will not change over the bond’s life, so semiannual interest payments from these bonds will stay the same, infrastructure bonds which are used by the government for specified infrastructure projects and zero-coupon bonds are similar to Treasury bills, in that they are sold at a discount and do not have interest payments.

Once you are ready to jump it, start by visiting the CBK website and click on invest to start monitoring the upcoming prospectuses, to find the right opportunity for you. In the prospectus, you will find information about the different securities on offer, including maturity dates and coupon rates.

3. Submit application form

Suppose you have settled for a bind, you will be required to complete an application form which will include information on personal details and the bond. You will have the option of choosing a coupon rate that could be pre-determined or market-based. 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.

But with mobile platforms such as M-Akiba where the government floats affordable bond here to finance Government development expenditure / budgetary support. With as little as Ksh 3000 you can purchase this bond via your phone.

4. Auction process

If you have submitted an application, it is prudent that you contact the Central Bank to determine how much you owe for the treasury bond, as you will need to make that payment by 2 pm on the following Monday, because, in as much as the investor will typically receive Treasury bonds in the amount they applied for, the Central Bank could issue bonds in a lower amount. This follows CBK considering all received bids, determining the cut-off rate and the weighted average of the accepted bids for market-determined coupon rate bonds.

5. Payment

After your submission is successful, you will be required to pay the amounts specified one you have contacted the Central Bank. Payment could be through cash or banker’s cheques for amounts under Kshs. 1 million. If you fail to submit payments within the payment period can be barred from future investment in government securities.

6. Interest payments

At this point, you can now enjoy the fruits of your labor. You will receive interest payment semiannually in your commercial bank account as detailed on your CDS account throughout the tenor of the financial instrument. Upon maturity, you will receive the last interest amount and the face value of the bond.