Before the signing of the Banking Amendment Bill 2015, many Kenyans were optimistic of lower interest rates on their loans and increased earnings on existing deposits. However, like any other regulatory actions, the gains and outcomes of the law will depend on its implementation.
Despite the uncertainty, the demand for government securities by financial institutions and retail investors has still managed to increase.
Recently, the first ever fifteen-year infrastructure bond was floated by the government and it was oversubscribed by 16%. The objective of the bond was to fund key development projects in the country.
Data from the CBK (Central Bank of Kenya) shows it received offers 13% beyond the KES. 30 billion projected to be raised for the State. This was an indication of investors’ confidence that interest rates are likely to remain relatively stable in the near future.
However, investor interest in the infrastructure bond by Kenyan and foreign players may have resulted in the under subscription of Treasury Bills. Subscriptions for the KES 6 billion 364-day T-Bill fell by 22% with yields of 10%. In addition, yields on 91-day bills declined by 7.7% compared to the 22% last year.
This lowering trend in T-Bills is of major concern to the government, who are trying to attract retail investors. Already the minimum amount for investment has been greatly reduced to give people a fair shot at buying treasury bills.
In addition, the Treasury Mobile Direct system is shifting the offering of T-Bills away from being the preserve of insurance entities and banks, to include ordinary Kenyans. This has increased their demand in the micro-financial industry.
What are T-Bills?
Treasury Bills (T-Bills) are short-term debt instruments that have a 1 year maximum period for maturity. They are issued by the CBK, to raise funds for the government on a short-term basis. They are different from bonds which are long term securities with fixed interest rates.
Features of T-Bills
Corporate entities and individuals can invest in T-Bills as a nominee of an investment or commercial bank in Kenya. If you own a bank account with a local bank you can invest directly via the CBK and avoid extra fees. Here are some features of T-Bills:
- They are secure: T-Bills are units of government debt, thus you are investing in the Country’s Government.
- They are short-term instruments: An investor is guaranteed returns within 3, 6 or 12 months, as the T-Bills typically mature within 91, 182 or 364 days.
- The rates are attractive: The short-term instruments offer consistent and attractive returns to investors. As a result, many investors find it interesting.
- Weekly Auctions: T-Bills provide regular investment opportunities due to the availing of 3 month, 6 and 12 month Bills.
Reasons to Invest in Treasury Bills
Here are advantages that T-Bills can offer to retail investors in Kenya include:
- Limited risk of losing investment
Because of their relatively low risk, there is a very small chance of you losing your initial investment. The securities are backed by the government so you do not have to lose sleep over the deal.
- T-Bills can be purchased in small amounts
This means that they are accessible to people from all walks of life. The minimum amount required to invest in a T-Bill is KES. 3,000. You can earn a better return on your investment compared to depositing the money in a savings account.
- They are flexible
Selecting a short maturity term is advantageous as it offers you flexibility in your investments. While longer term instruments can guarantee a larger return, but you can still earn interest if you go for a shorter term.
- Predictable Returns
With the state of the economy being fluid, investing in a T-Bill is a sure way of having a consistent return on your investment.
Despite their benefits, the downside to investing in T-Bills is, yields are lower compared to other forms of investment such as stocks, mutual funds or certificates of deposit. If you are looking for higher gains, T-Bills may not be the perfect option. Also, when buying Treasury Bills you have to bid them via an auction process. The process can be a bit complex and confusing to investors with limited knowledge on how government securities work.
Also, when buying Treasury Bills you have to bid them via an auction process. The process can be a bit complex and confusing to investors with limited knowledge on how government securities work. Sometimes the auction does not end up at a favorable interest rate.
T-Bills may not guarantee you quick riches, but they are the best option if you are looking for conservative investments for your portfolio. If a significant amount of your money is tied up in risky investments like mutual funds or stocks, T-Bills can even the odds without the need for a long-term commitment.
Have you invested in T-Bills before, what was your experience? Tell us what you think in the comments section below.
Learn More:
