Advantages of Investing in Bonds and Treasury Bills

As a result of the automation of settlement and trading operations at the Nairobi Stock Exchange (NSE), the bond market has experienced heightened turnover and increased liquidity.

In pursuit of fostering a dynamic bond market to mobilize capital and long-term savings, the government has implemented reforms. These initiatives play a crucial role in advancing the nation’s aspirations of attaining middle-income status, aligning with the goals outlined in the Vision 2030 roadmap. Active participation in the bonds and treasury bill market is integral to realizing these objectives.

Understanding Bonds and Treasury Bills:

Bonds: Long-term debt securities with fixed interest rates issued by the government. These promissory notes entail an obligation from the borrower (or bondholder) to repay the principal when the bond matures. Interest payments are made at specified intervals, irrespective of the borrower’s profit or loss.

Treasury Bills (T-Bills): Short-term debt instruments with a maximum maturity period of one year. Issued by the Central Bank of Kenya on behalf of the government, T-Bills serve as a means to raise funds on a short-term basis.

Prerequisites for Acquiring Government Securities:

Prospective buyers must register a Central Depository Systems (CDS) Account with the Central Bank of Kenya. Generally, investing in government securities necessitates a significant minimum investment, usually set at Ksh. 100,000 and above (approximately USD 1,000).

However, recent legislative changes have reduced the minimum investment in treasury bills to Ksh. 3,000 (USD 30), and the account can now be opened through a mobile phone. Moreover, individuals can conveniently buy and trade treasury bonds using their mobile devices.

Eligibility Criteria for Government Securities Investors:

Residents or corporate entities with accounts in local commercial banks.
Residents or corporate entities holding accounts in local banks and investing as nominees of investment banks or commercial banks.
Residents or corporate entities with CDS accounts in the Central Bank of Kenya.
Prospective buyers are required to invest a minimum of Kshs. 100,000, with additional amounts in multiples of Kshs. 50,000.

Advantages of Investing in Bonds and Treasury Bills:

Safety for Savings: Considered low-risk, these securities provide assurance of recovering the invested amount with the promised interest.

Predictable Returns: During market turbulence, bonds and T-bills tend to remain relatively stable, offering predictability in returns.

High-Interest Income: Bonds and T-bills yield higher interest rates compared to savings accounts in banks.

Diversification: Investing in Bonds and T-Bills serves as a prudent strategy for diversifying investments, preventing concentration in a single asset class.

Government securities play a pivotal role in addressing revenue shortfalls. The issuance process and framework are regularly published in Kenyan dailies, providing individuals with opportunities to augment their income through these securities.