Due to the automation of settlement and trading at the NSE (Nairobi Stock Exchange), the bond market has witnessed a high turnover and increased liquidity.
The Government introduced reforms aimed at making the bond markets vibrant to mobilize capital and long-term savings.
They are important drivers in achieving the country’s goals of becoming a middle-income economy. To achieve the Vision 2030 roadmap, participation in the bonds and treasury bill market is critical.
What are Bonds and Treasury Bills?
- Bonds: These are long-term debt securities with fixed interest rates that are issued by the Government. They are promissory notes in which the borrower makes an obligation to the lender (also called the bondholder), to repay the principal when the bond matures. The borrower will pay interest at certain times before maturity of the bond. The interest is paid regardless of profit or loss by the borrower.
- Treasury Bills (T-Bills): These are short-term debt instruments with a maximum one-year maturity period. They are issued by the Central Bank of Kenya, on behalf of the government to raise funds on a short time basis.
Requirements for Buying Government Securities
The buyer is required to register a Central Depository Systems (CDS) Account with the Central Bank of Kenya. Typically investing in government securities requires the buyers to make a significant minimum investment. The price is usually set at Ksh. 100,000 and above (approx. USD 1,000).
However, due to recent legislation, the minimum investment in treasury bills is Ksh. 3,000 (USD 30) and the account can be opened through a mobile phone. In addition, people can also buy and trade treasury bonds via their mobile devices.
Who is Eligible to Invest in Government Securities?
- Residents or corporate bodies who have accounts in local commercial banks.
- Residents or corporate bodies, who have an account in a local bank, but invest as nominees of investment banks or commercial banks.
- Resident or corporate bodies with CDS accounts in the Central Bank of Kenya
- Potential buyers must invest a minimum of Kshs. 100,000. Additional amounts will be in multiples of Kshs. 50,000.
Benefits of Investing in Bonds and Treasury Bills
- Safety for your Savings: They are considered to have little or practically no risk attached to them. All things being equal, you will definitely get your money back with the promised interest.
- Returns are predictable over time: During turbulent times at the stock market bonds and T-bills are known to remain relatively stable.
- High-Interest Income: Bonds and T-bills pay a higher rate of interest compared to saving accounts in Banks.
- Diversifying Your Investment: Investing in Bonds and T-Bills can be the best way of not putting your eggs in a single basket.
Government securities are one of the ways how the government addresses a shortfall in its revenue. The process and framework for issuing them is published in the in Kenyan dailies on a weekly basis. Individuals have an opportunity to increase their income through these securities.
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