UNDERSTANDING GOVERNMENT SECURITIES (TREASURY BILLS AND BONDS) KENYA

The Central Bank of Kenya (CBK) is the body mandated to manage government securities on behalf of the National Treasury. This meaning that the CBK is in charge of holding auctions for the government securities throughout the year to raise money needed by the National Treasury.

Government securities refers to debt obligations of the Kenyan government that individuals and organizations can invest in. by investing in government securities, it means you are loaning the Kenyan government money for a set period of time at the end of which you get your invested money back and interest less withholding tax.

In Kenya, Government securities are offered either as Treasury Bills or Treasury Bonds.

Treasury Bills are short term government securities with a maturity period of either 91 days, 182 days or 364 days meaning that when you invest in the bill, it will pay out in Three months (for the 91 days maturity bill), Six months (for the 182 days maturity bill) or Twelve months (for the 364 days maturity bill).

For example is you invest in a 364 days Treasury bill with a face value of Ksh. 100,000.00 and a 10% interest rate. You will pay Ksh. 90,932.00 for it after the withholding tax and discount have been deducted and at the end of the 364 days you will receive Ksh. 100,000.00.

Treasury Bonds on the other hand, are long term government securities with long term maturity period that can go up to 10 years. It is also important to note that Treasury Bonds usually have a fixed interest rate that is if as an investor you purchase a certain amount of the bond, you will receive a percentage of the amount after every 6 months throughout the bond maturity period and when the bond matures, you receive the final interest and initial investment.

For example, if you invest Ksh. 100,000.00 on a 10year Treasury Bond with a coupon rate of 5% per year/annum, you will be receiving Ksh. 2250.00 (2500.00 less withholding tax of 250.00) as interest after each and every six months and at the end of the 10 years you would have received a total of Ksh. 45,000.00 as interest together with your investment of Ksh. 100,000.00.

How to invest in government securities?

You can invest in government securities through your commercial bank with a client account. In this case the commercial bank will invest on your behalf and you will not have to open a CDS account or submit the application form to CBK. A CDS account is an account allocated to a customer either individual or corporate for purposes of investment in government securities.

Note that is you use your client account in a commercial bank, you will have to meet your bank charges as may be applicable.

It is also important to note that upon maturity of the bill or bond, all payments are automatically remitted to the provided commercial bank account as indicated in the CDS account.

For more information or assistance with investment in government securities in Kenya please contact us on info@aowangaadvocates.com or +254794600191

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