A treasury bond is a medium- to long-term government security issued by the Central Bank of Kenya. Treasury bonds are secure because you are lending to the government.
The long-term investment potential of bonds is greater than that of Treasury bills. The minimum maturity period is one year and the greatest thirty years.t
Depending on the investment maturity period. Interest payments are done after every six months through the bond life. Allowing you to earn as you invest in the government.
Important factors to know about Bonds
- They are offered monthly
- Minimum investment funds for bonds is Ksh; 50,000 and Ksh; 100,000 for Infrastructure bonds
- They have predictable long term earnings
- T. Bonds have a fixed rate interest and are subject to tax
- Infrastructure bonds DO NOT attract Tax making them a highly anticipated investment option
- Both individuals and Corporates can invest in treasury bonds
- Coupon Rates refers to interest payments to be received
- Amortization is when the government through the treasury decides to pay off a portion of the bond throughout its life. In this instance, the investor receives small interest payments.
- One cannot invest in government securities without a CDS account. This can be done through a third party or directly with CBK at no cost. Click here (Link CDS Account opening Article)
What types of Bonds are available?
- Fixed Coupon Bonds:
The interest rates in this type of security do not change throughout the bond period
Semiannual interest payments remain constant
- Infrastructure Bonds:
Attract high market demand because they don’t tax-exempt.
Issued for short term periods
- Zero-Coupon Bonds:
These are like Treasury bills since they are sold at a discount of the face value
Short term bond issues do not attract the semiannual interest payment
How to apply for Bonds
Treasury Bonds are applied for the same way treasury bills are applied. Check out (CBK Website) for the application process.
For pre-determined coupon rates choose the non-competitive/average rates. This means that the rates are not subject to change throughout the bond period.
For the market-determined bonds, you are at liberty to choose the available interest rates options.
Just as the name indicates the rates to these bonds are driven by the market value.
Rollover instructions are key when making your security application. Always indicate your instructions in due time before the closure of the new bond opening.
For rollover instructions to take effect. The maturity date of the current investment MUST match with the value date of the forthcoming new bond.
Advantages of investing in Bonds
It is a secure way of investing – this is because you are investing in the government
There is guaranteed regular returns that are effected / after every six months
There is enough flexibility allowing you to choose what option best fits your investment needs
Bonds are auctioned monthly compared to treasury bills that happen weekly
Bonds attract a higher interest rate compared to treasury bills making them more attractive to the investors
Nobody can tell you otherwise about investing in both bonds and bills go ahead and make informed financial decisions!
