In the recent past, the interest rate on Treasury Bills and Treasury Bonds has been substantively high. The Bills rate has been at around 10% and the Bonds rate at above 14%. This is indeed a good time to consider investing in these treasury products.

Below is a simplified guide on how Treasury products work and how to invest in the same.

Investing in Treasury Bills and Bonds

Treasury Bills and Treasury Bonds are one of the ways that the government funds its expenses through debt or borrowed funds. Treasury bills are used to borrow short-term funds (within a year) to finance the day-to-day running of the government, such as paying supplies, wages, salaries and the like.

On the other hand, Treasury Bonds are used to borrow long-term funds from the local public (periods of more than a year). These funds are utilized for capital expenditures such as building roads, hospitals, bridges and the like.

Characteristics of Treasury Bills and Bonds

•    The government offers Treasury Bills in 3 periods; 91 Days, 182 Days and 364 Days. Treasury Bills are on offer every week. Interest rates are determined through an auction process. Investors place bids and depending on the amount the government want to raise, the interest rate is determined.
•      Each month, the Central Bank announces the Treasury Bonds on offer. The Bonds differ in terms of; period, interest rate (coupon), and tax implication among other factors. You can get the current offers here - https://www.centralbank.go.ke/bills-bonds/treasury-bonds/
•     If a Treasury bond does not raise the amount that the government has targeted, the government can re-issue the bond in later months or years.
•     The Central Bank pays interest for the treasury bonds in intervals of 6 months. The interest rate of Treasury bills is deducted at source. This is called discounting. For example, if you successfully apply for a Treasury bill of Ksh 200K and the interest rate is 15K, you will pay CBK Ksh 185K and receive the Ksh 200K at the end of the investment period.
•     Treasury Bonds for building infrastructure (Referred to as Infrastructure Bonds) are 0% tax-rated.

Below is a summary of the characteristics of Treasury Bills and Bonds;

	Treasury Bills	Treasury Bonds
Period	Short Term (3, 6 or 12 months)	Long Term (Over 1 year)
Interest	Discounted	Every 6 months
Price Determined	Auction	Auction
Transfer	Non transferable	Yes - NSE
Minimum	100,000.00	100,000.00
W/Tax on Interest	15%	15%,10%, 5% and 0% for Infrastructure Bonds
Returns	Interest	Capital gain/interest
Interest rates (current season)	8-11%	13-15%
Costs	No further costs	NSE fee 2.6%
Offers	Weekly	Monthly

How to trade in Treasury Bills and Bonds

Opening a CDS Account with the Central Bank of Kenya – To trade in a Treasury Bill or Bond, you need to open a CDS account with the Central Bank. This CBK CDS account is different from the CDS account used for trading in stocks.

To open the CBK CDS account, you need to visit a CBK near you. There are 7 CBK locations. See locations here - https://www.centralbank.go.ke/contact-us/ . You can also open a CBK CDS from any CBK Treasury Bills and Bonds agents. Agents include stockbrokers, commercial banks and other financial institutions.

Once at CBK, ask for the Treasury Bills & Bonds desk and request to open an account.

Opening an account takes about 2 weeks after applying. You will receive a notification from CBK by text once this is done.

Deciding on the Treasury Bonds on Offer – Once your account is open, you can now trade in both Treasury Bills and Bonds.

To buy Treasury Bonds, you need to know what is on offer. You can find this information on the CBK website here;- https://www.centralbank.go.ke/bills-bonds/treasury-bonds/

Make an Application – Once you have determined the Treasury Bill/Bond to purchase, you will apply by filling out an application form with your details and the amount you are seeking to invest and submit it to the Central Bank before the indicated deadline. You can also apply using the CBK USSD code of *866#

Results Announced - The Central Bank will alert you through a text of the conclusion of a Treasury bill or bond auction. You can check the status of your application via the CBK USSD for Treasury Bills & Bonds (*866#).

Make Payment – Once your application is successful, you will make the payment for the bill or bond. To do so, give instructions to your bank to transfer funds to the CBK account with your details. Your local bank will help you with making this payment. You can also pay by depositing a Banker’s Check to any CBK office, or Treasury Bills & Bonds counter. Once you make the payment, your CBK Treasury bills & bond CDS account will be updated with the bill/bond.

Receiving interest for Treasury bonds – The Central Bank will pay you interest every 6 months after purchasing the Treasury Bond until the end of the period of the bond. Payments will be made through the bank account you indicated in your application.

End of Tenor – At the end of the tenor, Central Bank will pay you back the amount that you invested in the Treasury Bond.

Selling in the Nairobi Securities Exchange – Treasury bonds are negotiable. This means that you can sell your treasury bond to someone else through the Nairobi Securities Exchange before the end of the tenor. For example, if you buy a 25-year Treasury Bond, you can sell it to someone else through the NSE after 2 years or after any period. The price of the Bond is determined by demand/supply forces.

We hope this has shed more light on how to invest in Treasury Bills and Bonds. If you have any further queries, kindly feel free to ask by writing to us at invest@rubianiwealth.com