Government Securities in Kenya
If you’re keen to invest in a secure and reliable product, government securities can be an excellent option. The Government of Kenya through Central Bank of Kenya (CBK) offers various types of debt instruments, including Treasury Bills, Treasury Bonds and Infrastructure Bonds. We’ve also had the first Islamic bond, Sukuk Bond. Each of the bonds are issued to meet various developmental objectives and risk profiles.
What are Government securities?
Government securities are financial instruments issued by the Government to raise funds to run various projects and expenditures. A closer look at the types of Government securities in Kenya:
- Treasury Bills (T-Bills): These are short-term instruments with maturities of 91 days, 182 days, and 364 days. They are a good investment for investors with a low risk appetite. T-Bills are issued at a discount and redeemed at their face value, allowing investors to earn a profit.
- Treasury Bonds (T-Bonds): Unlike T-Bills, T-Bonds have longer maturities, 2 years and above. A bond prospectus is provided that details all features of an issued bond. They pay periodic interest known as coupons on specific dates. They provide steady income over the bond tenure to investors. Under T-Bonds we have fixed coupon and infrastructure bonds distinguished by features not limited to taxation structure, minimum investment, bond amount, frequency of issue and time horizon.
- Infrastructure bond (IFB) – Designed to fund development projects in Kenya such as civil works. They are issued at a discount or premium, tax exempt, require a minimum of KES 100,000 but can also be KES 50,000. Coupons are distributed semi-annually among other features in the prospectus.
- Fixed Coupon Bond (FXD) – Designed to fund day-to-day Government expenditure and other public projects. Similar to IFB, are issued at a discount or premium, require minimum investment of KES 50,000,, subject to 15% withholding tax, coupons on a semi-annual basis etc.
Disclaimer: Investing in Government securities carries risks, and past performance (empirical data) is not indicative of future results. Make sure to do your own due diligence and if you prefer can consult with a financial advisor to guide you before making any investment decisions. Be sure to confirm you are dealing with a registered and approved financial advisor and don’t share your personal details; security details included.
Why Invest in Government Securities in Kenya?
- Risk level: Government securities are considered a low risk and safest investment because they are backed by the Government of Kenya. There is almost no default risk and can be a reliable investment for risk-averse investors.
- Diversification: Are a profitable addition to an investment portfolio to balance risk of other asset classes like stocks, real estate etc with hope to maximising on returns.
- Income: They pay regular periodic interest or coupons which are predictable, making them attractive investment to income-oriented investors.
- Liquidity: Investors have easy access to investing to Government securities through the secondary market in case they miss it during the initial offering in the primary market. It’s also beneficial to investors who may need to access their funds before bond maturity.
Getting Started
Investing in Government securities is relatively simple. An investor can participate through CBK DhowCSD portal, your bank or a licensed stockbroker.