Government Securities

Executive Summary

Government Securities: Offers options for short-, medium- and long-term investment horizons, which are:

• Treasury bills, which are short-term investments with short-term returns.
• Treasury bonds that are medium- to long-term investments with interest payments every six months.

Central Bank auctions off a range of bonds monthly and T/bills weekly.

• Fixed-income security offers consistent or fixed returns.

Majority of bonds are Treasury bonds with fixed coupons.

• Infrastructure bonds have tax-exempt returns for specific infrastructure projects.
• Zero coupon bonds are offered at a discount and resemble Treasury bills.

Differences between the two are:

Introduction and Background

The Central Bank of Kenya (CBK) has been actively involved in developing Kenya's domestic market for government securities since its establishment in 1966. On Feb. 2025, the CBK reopened two infrastructure bonds; bidding for the two papers ran until 12/02/2025. offering investors a chance to invest; it also had 91, 182 & 364 T-bills with a value date of 17th Feb. 2025. Bids received for the two bonds were over 170 billion Ksh and it only accepted 130 billion Ksh.  This act demonstrated how these government assets, which offer a steady and secure return, are a crucial component of conservative investment portfolios.

Data and Analysis

Naming of bonds

Lets say, IFB1/2022/014:

• IF = Infrastructure bond
• BI = Beginning of the year
• 2022 = Bond was issued in 2022
• 14= Tenor (Period in years)

Calculation of T-bills & T-bonds

The Central Bank provides a yield table in its prospectus for T/bonds and T/bills and users can use the pricing calculator on the CBK website for easy price calculation.

The following is merely a preliminary illustration of how interest is calculated for T-bills and T-bonds:

1. T-bills:

Face-Value = Ksh 100,000, Discount-rate = 9.5%, Maturity= 91 days

• Interest = 100,000*(9.5%*91/365) = 2,368.49
• With-holding-tax= 15%*2,368.49= 355.27
• Net-interest= 2,368.49 - 355.27= 2,013.22

After 91 days an investor will receive the principal amount(face-value) of 100,000 plus an interest of 2,013.22

2. T-bonds

Face-Value= Ksh 1,000,000, Coupon-Rate = 10.5%, Maturity = 5 years

• Semi-annual interest = (1,000,000*10.5%)/2 =52,500
• With-holding-tax= 15%*52,500= 7,875
• Net-interest= 52,500-7,875= 44,625
• Total interest over 5 years= 44,625*5*2= 446,250

After 6 months, an investor will receive Ksh 44,625 and a total of Ksh 446,250 interest for the whole period, plus a principal of Ksh 1,000,000.

Note: The withholding tax on Treasury bonds & bills is 15% for tenors up to 9 years and 10% for tenors 10 years or more, unless tax-exempt investors provide a tax exemption certificate or pay directly to the Kenya Revenue Authority.

Key Findings

A tap sale, is when the Treasury sells previously issued bonds at the current market price, while maintaining the bonds' original face value, maturity, and coupon rate.

• Treasury bonds can be transferred between CDS account holders, used as collateral security for loans, and utilized for liquidity management. They are traded on the Nairobi Securities Exchange (NSE).

Accessing Funds Before Maturity

• Investors can rediscount securities before maturity.
• Central Bank buys securities back at a punitive rate.
• Both types can be transferred to other parties, but T/bills can’t be transferred to secondary market.

Government Securities Investment by Kenyans Abroad and Non-Kenyan Citizens

• If they have an active Kenyan bank account, Kenyans living overseas can invest in government securities.
• Non-Kenyan citizens may invest through stockbrokers, local commercial banks, or investment banks as nominees.

Third Party Claims in Investments

• Third parties can claim investor's securities if investor dies before investments mature, documents must prove bona fide recipients.

Recommendations

• To invest in Kenyan government securities, one must open a CDS account with the Central Bank of Kenya or participate in auctions through an investment broker or bank.
• If at all possible, investors who have purchased these government securities ought to keep them until they mature.

References

• Central Bank of Kenya
• KCB
• University of Nairobi
• Kenya Wall Street