Investing in government securities, bonds and bills, is a simple process that anyone can undertake directly through the Central Bank, or through a commercial or investment bank.
Government securities are risk-free investments. The securities provide you with a return and/or a consistent source of income over a given period of time.
The two main types of government securities offered by the National Treasury for investment by the members of the public or corporate bodies include:
Treasury bills are a secure short-term investment that offer returns in your investments after a relatively short time.
Investment opportunities in treasury bills is readily available because auctioning occurs weekly.
Individuals can invest in treasury bills as nominees of commercial banks or investment banks. However, if you hold an account with any local commercial bank, you can invest directly through the Central Bank of Kenya.
Treasury bonds, are a medium to long-term investment that offers an interest payment in your investment after every six months throughout the bond’s maturity period.
Unlike Treasury bills that are auctioned on weekly basis, treasury bonds are auctioned monthly and are of different varieties.
Treasury Bonds are a predictable long-term sources of income because they are offered in fixed rates. The interest rates determined during the auctioning period are locked in for the entire life of the bond.
Similar to treasury bills, individuals and corporate bodies can invest in bonds as a nominees of commercial banks or investment banks. You can also invest as an individual through the Central Bank of Kenya if you own an account with any commercial bank.
Who can invest in Government Securities?
The National Treasury allows investments from commercial banks, corporate entities, pension schemes and individuals who own an account with a local bank. Commercial banks, corporate and pension schemes are the largest investors.
Individuals who are interested in investing in treasury bonds are required to have an active bank account as well as a CDS account with the Central bank.
Investors who are not Kenyan citizens can invest in government securities as nominees of local commercial banks or stoke broker.
How to invest through the C.B.K
Open a CDS account
Before investing in government securities, you will require a CDS account with the CBK. A CDS account enables the Central Bank to keep track of who holds which government securities.
CDS account can be opened by either individuals or corporate bodies free of charge. After you have this account, you can invest in multiple treasury bills and bonds.
To open a CDS account, you need an active bank account with Kenyan commercial bank; a mandate card filled in block letters. This can be obtained from the Central bank or any of its branches. The card will require two signatories from your commercial bank to sign and verify the information you have provided.
During submission the mandate card, you will be required to provide a passport sized photograph, certified and stamped by a representative from your commercial bank.
You also need to submit a clear copy of your National I.D, passport or alien certificate.
Decide how you want to invest
When choosing a bond or bill to invest in, consider what is available in the upcoming auction and how long of a commitment you want to make.
Treasury bonds are offered for a set of amount of years, ranging, to date, from 1 to 30.
There are several types of bonds that are made available for investment:
Fixed coupon treasury bonds-in this type of bond, the interest rate associated with the bond will not change over the bond’s life.
Infrastructure bonds-They are used by the government for specified infrastructure projects. Infrastructure bonds don’t have taxes attached to them and as such, they attract high market interest.
Zero coupon-They are sold at a discount and do not have interest payments just like Treasury bills.
Treasury bills are offered weekly and mature after 91 days, 182 days or after 364 days. They have a minimum face value purchase of Ksh. 100,000. It is however required that investments be made in portions of Ksh. 50,000.
Compare and submit an application form
A treasury bill or bond application form contains information about the bond or bill you want to purchase; the issue number, maturity period and the face value amount you want to receive upon maturity of your investment.
It also includes personal information such as your name, telephone number, CDS account number and whether the funds are investing are from a local or offshore source.
The payment period for an auction closes on the following Monday. Investors can submit their payments in the amount specified when they contract the CBK, through cash or bankers cheques for amounts under Ksh. 1 million and through KEPSS transfer for larger amount.
Successful applicants who fail to submit their payments within the specified time can be barred from future investments.
Upon maturity in a treasury bond, investors will receive interest payment semi-annually in their commercial banks as indicated in the CDS account throughout the tenor of the bond.
Investors who invest in treasury bills will receive their interest at the end of 91, 182 and 364 days as indicated on the CDS account as explained here Treasury Bills and Bonds