Treasury Bonds & Bills Kenya: Safe Government Investments

What Are Treasury Bonds and Bills?

Treasury bonds and bills are loans you give to the Kenyan government. In return, the government pays you interest.

Why government borrows: To fund infrastructure (roads, hospitals, schools), pay salaries, manage budget.

Why you should consider: Safest investment in Kenya—government guarantees repayment.

Treasury Bills vs Treasury Bonds

Treasury Bills (T-Bills)

Short-term: 91 days, 182 days, or 364 days

Returns: Currently ~15-17% per year

Minimum: KES 100,000

Interest payment: At maturity (you receive principal + interest together)

Best for: Short-term savings (less than 1 year)

Treasury Bonds (T-Bonds)

Long-term: 2 to 30 years

Returns: 14-18% per year (varies by term)

Minimum: KES 50,000

Interest payment: Every 6 months (semi-annual coupon)

Best for: Long-term investing, regular income

Quick Comparison

Why Invest in Government Securities?

1. Safety

Backed by government—lowest risk investment in Kenya.

Default risk: Near zero (government can raise taxes, print money if needed).

Compared to: Company bonds (company can go bankrupt), stocks (can lose value).

2. Good Returns

Currently: 15-17% for T-Bills, 14-18% for T-Bonds

Compare:

• Bank fixed deposit: 7-11%
• Money market fund: 10-14%
• Savings account: 3-7%

Government securities offer best risk-return balance.

3. Tax Benefits

Some bonds are tax-free (infrastructure bonds).

For others: 15% withholding tax on interest (still better than most alternatives after tax).

4. Liquidity (for Bonds)

Secondary market: Can sell bonds before maturity through brokers.

T-Bills: Hold to maturity (3-12 months), or sell on secondary market (less common).

How to Buy Treasury Bonds and Bills

Method 1: Directly Through Central Bank (CBK)

Free—no fees!

Step 1: Open CDS Account

Central Depository System (different from CDSC for stocks).

How:

• Visit CBK website: centralbank.go.ke
• Download CDS Account Opening Form
• Fill and submit at CBK offices or authorized banks (KCB, Equity, Co-op Bank, NCBA, Stanbic)

Documents needed:

• National ID (copy)
• KRA PIN (copy)
• Passport photo
• Bank account details

Cost: Free

Time: 1-3 days

Step 2: Get CDS Number

Unique account number for holding government securities.

Received via SMS/email when account approved.

Step 3: Check Auction Calendar

CBK auctions T-Bills every week, T-Bonds monthly.

Find calendar:

• CBK website (centralbank.go.ke)
• Under “Financial Markets”
• Check auction dates, which securities available

Step 4: Place Bid

Two bid types:

Competitive bid: You specify interest rate you want.

• Risk: If your rate too high, bid rejected.
• For experienced investors.

Non-competitive bid: Accept whatever rate CBK sets.

• Guaranteed acceptance (up to KES 10 million for T-Bills, KES 1 million for bonds).
• Recommended for beginners.

How to bid:

• Online via CBK mobile app (recommended)
• Or fill paper bid form, submit at CBK/bank
• Or via internet banking (some banks offer)

Deadline: Usually day before auction (check specific auction).

Step 5: Auction Results

CBK announces: Usually same day or next day.

If successful: SMS confirmation, amount deducted from bank account.

Interest rate: For non-competitive bids, you get weighted average rate from auction.

Step 6: Receive Interest

T-Bills: Interest + principal at maturity (91/182/364 days later).

T-Bonds: Interest every 6 months; principal at end of term (2-30 years).

Payment: Directly to your registered bank account.

Method 2: Through Mobile Money (M-Akiba)

M-Akiba: Retail bond platform for small investors.

Minimum: KES 3,000 (much lower!)

How:

1. Dial *889# (Safaricom)
2. Register (provide ID, PIN)
3. Buy bonds directly via M-Pesa
4. Receive interest to M-Pesa every 6 months

Advantages: Very accessible, low minimum, simple process.

Disadvantages: Limited bond offerings (not all bonds available), may have lower returns.

Method 3: Through Investment Banks/Brokers

Some brokers offer to buy government securities on your behalf.

Advantages: Convenience, guidance.

Disadvantages: Fees (1-2%), cuts into returns.

When to use: If you prefer hand-holding, or buying on secondary market.

Calculating Returns

T-Bill Example

Investment: KES 100,000 in 91-day T-Bill at 16% annual rate.

Actual period: 91 days = 91/365 = 0.249 years

Interest earned: 100,000 × 0.16 × 0.249 = KES 3,984

Amount at maturity: KES 103,984

Effective return: ~16% annualized.

T-Bond Example

Investment: KES 100,000 in 5-year bond at 17% annual coupon.

Semi-annual coupon: 17% ÷ 2 = 8.5% every 6 months

Payment every 6 months: 100,000 × 0.085 = KES 8,500

Total over 5 years:

• Interest: KES 8,500 × 10 payments = KES 85,000
• Principal returned: KES 100,000
• Total: KES 185,000

If you reinvest the semi-annual interest: Even higher total return (compound effect).

Risks and Considerations

Interest Rate Risk (Bonds)

If interest rates rise after you buy a bond, newer bonds offer higher rates.

Your bond value drops on secondary market (if you want to sell early).

Example: You buy 10-year bond at 16%. Next year, new 10-year bonds offer 18%. Your bond worth less if you sell.

Mitigation: Hold to maturity (you still get your coupon and principal).

Inflation Risk

If inflation is 8% and bond pays 16%, real return = 8%.

If inflation rises to 10%, real return drops to 6%.

Mitigation: Choose bonds with rates significantly above inflation.

Liquidity Risk (Bonds)

Hard to sell before maturity without losing value (secondary market has spreads).

T-Bills mature quickly (3-12 months), less concern.

Bonds lock money for years.

Mitigation: Only invest money you won’t need for the bond’s term.

Opportunity Cost

If you lock money in 5-year bond at 17%, and stock market returns 25%, you missed out.

Balance: Diversify—some in safe bonds, some in growth assets (stocks).

Tax Treatment

Taxable Bonds

Most T-Bonds: 15% withholding tax on interest.

Example: Earn KES 10,000 interest → KES 1,500 tax → You receive KES 8,500.

Still competitive after tax compared to other investments.

Tax-Free Bonds

Infrastructure bonds: Specifically labeled tax-free.

100% of interest is yours.

Advantage: Effectively 15% higher return than taxable bonds.

Example: 16% tax-free bond = equivalent to ~18.8% taxable bond.

T-Bills

Currently taxed at 15% withholding.

Strategies for Different Goals

Emergency Fund Top-Up

Use: 91-day T-Bills

Why: Short maturity, safe, better than savings account.

Roll over: Reinvest at maturity to keep money working.

Retirement Savings

Use: Long-term T-Bonds (10-20 years)

Why: Regular income (semi-annual coupons), safe, predictable.

Strategy: Build bond ladder (bonds maturing different years).

Child’s Education

Use: T-Bonds matching education timeline.

Example: Child is 8, university in 10 years → Buy 10-year bond.

Interest: Use for school fees now, or reinvest; principal for university.

Diversification from Stocks

Use: Mix of T-Bills and T-Bonds.

Allocation example: 60% stocks, 30% bonds, 10% cash.

Why: Bonds stable when stocks volatile—balances portfolio.

Comparing to Other Investments

Bonds vs Money Market Funds

Bonds:

• Higher returns (15-17%)
• Government guaranteed
• Lock money (bonds) or short-term (bills)

MMFs:

• Slightly lower (10-14%)
• Very liquid (withdraw anytime)
• Professionally managed

Best: Use both—MMFs for flexibility, bonds for higher returns on money you don’t need soon.

Bonds vs Fixed Deposits

Bonds: 15-17%, government-backed, tax-free options.

Fixed deposits: 7-11%, bank-backed, taxed.

Bonds clearly better for most investors.

Bonds vs Stocks

Bonds: Low risk, predictable returns, income-focused.

Stocks: Higher risk, potential 20-30% returns (or losses), growth-focused.

Best: Combine—bonds for stability, stocks for growth.

Tips for Success

1. Start with non-competitive bids: Guaranteed acceptance, good for beginners.
2. Use CBK direct (free!) rather than brokers (fees).
3. Reinvest T-Bill proceeds: At maturity, roll into new T-Bill—compounding effect.
4. Build bond ladder: Buy bonds maturing in different years—regular income, flexibility.
5. Choose tax-free infrastructure bonds when available—higher effective return.
6. Match term to goal: Need money in 1 year? T-Bills. 10 years? Long-term bond.
7. Don’t sell bonds early: Hold to maturity to avoid secondary market losses.
8. Track auction calendar: Set reminders for weekly T-Bill auctions.
9. Diversify: Don’t put 100% in bonds—mix with stocks, real estate, other assets.
10. Keep records: Track purchase details, interest payments for tax/planning.

Common Mistakes

1. Buying bonds with money you’ll need soon: Can’t access without selling at loss.
2. Ignoring tax status: Tax-free bonds often better than slightly higher taxable bonds.
3. Paying broker fees when CBK direct is free.
4. Panic selling bonds when interest rates rise (hold to maturity).
5. Not reinvesting T-Bill proceeds: Missing compounding.
6. Forgetting auction dates: Missing investment opportunities.
7. Wrong bid type: Competitive bids rejected if rate too high.

Checklist: Getting Started

✅ Understand difference between T-Bills (short) and T-Bonds (long) ✅ Opened CDS account (via CBK website/bank) ✅ Received CDS number ✅ Registered on CBK mobile app or internet banking ✅ Checked auction calendar (weekly T-Bills, monthly T-Bonds) ✅ Decided: T-Bills or T-Bonds based on timeline ✅ Set aside minimum amount (KES 100k T-Bills, KES 50k T-Bonds) ✅ Placed first non-competitive bid ✅ Received confirmation and interest payment details ✅ Set calendar reminders for interest/maturity dates

Next Steps

1. Visit centralbank.go.ke today—download CDS forms
2. Open CDS account this week (at CBK or authorized bank)
3. Download CBK mobile app—easiest bidding method
4. Check next auction date—usually every Thursday for T-Bills
5. Start with KES 100,000 in 91-day T-Bill (shortest, test the process)
6. At maturity (3 months), reinvest or try 182-day/364-day bill
7. After comfort with T-Bills, try T-Bonds for long-term goals
8. Build habit: Weekly/monthly investing via auctions

Treasury bonds and bills are Kenya’s safest, most accessible high-return investments. Government-backed, predictable, and currently offering 15-17% returns—far better than bank accounts. Open your CDS account, place your first bid, and start earning reliable interest. Your path to safe, steady wealth growth starts now!