Introduction
Are you ready to invest in bonds? Go through this checklist and find out whether you are bond-ready.
Before we go into the checklist, there's a few basics we must go through so that you understand what it takes.
Bond Basics.
Are you ready to invest in bonds? Go through this checklist and find out whether you are bond-ready.
Before we go into the checklist, there's a few basics we must go through so that you understand what it takes.
Bond Basics.
- To invest in bonds, you must have a CDS Account with Central Bank of Kenya (CBK). This account has three purposes:
- To hold and track your bonds, CBK uses this account to know the bonds you own.
- To map your bank account to your CBK CDS Account, your CDS account only holds bonds but it contains info on your bank account, where the CBK should pay the bond interests to.
- To map your broker to your CBK CDS Account, if you want to trade in the secondary market i.e. buy/sell bonds from other bondholders, you must use a broker. The CDS Account is mapped to your broker to allow this process.
Therefore, to buy bonds directly from the CBK, you must have a CDS Account with the CBK.
And to buy/sell bonds from/to other bondholders, you must have a broker and you must map your account to your broker.
In the next few pages, we shall go through in detail the process of getting the CDS Account, the process of buying a bond from CBK, the process of mapping your account to a broker and what you should look for in a bondbroker and the process of buying and/or selling your bonds to other bondholders in the secondary bond market.
Bonds are electronic and are regulated by the CBK. To make the process easier for regulation, CBK have dedicated accounts for holding and dealing bonds called CDS Accounts.
A CDS Account simply put is an account with the CBK that links a bondholder to his bonds and his bank account so that the CBK can know where to pay the bond proceeds (interest payments) and to know how to track bondholders easily.
Getting a CBK CDS Account
Without this account, you cannot buy government bonds.
Therefore, to buy a bond, you must have a CDS Account. To sell a bond, you must have a CDS Account (obviously since you must have bought it to sell.
Without this account, you cannot buy government bonds.
Therefore, to buy a bond, you must have a CDS Account. To sell a bond, you must have a CDS Account (obviously since you must have bought it to sell.
Therefore, to get a CDS Account, you must go directly to CBK offices or a
CBK branch yourself. Note that you cannot do this process remotely since the process will require you to sign these forms in person in the presence of a designated CBK official.
The full process is outlined below:
CBK CDS Account Opening Process
- Go to CBK offices/authorized agent of mandate form (CDS opening form)
- Fill in the mandate form in BLOCK LETTERS but DO NOT sign it
- Get a colored passport photo and copy of your ID and KRA pin
- Head to your local registered and licensed bank with your mandate form
- Get two signatories from the bank to sign and stamp your mandate card and confirm your bank account and passport photo.
- Return to CBK with signed mandate card, signed passport photo and copy
- of ID and KRA pin
- Sign the mandate card in the presence of a designated CBK officer
- Hand it in and await your CDS Account to be opened (process should take 7 working days to complete)
NOTE: DO NOT fold or mutilate your mandate card or staple/stick your passport photo to the mandate card.
Buying a Bond from the Primary Bond Market
How to buy a bond directly from CBK.
You have already gotten your CDS Account, now you can buy a bond directly from the CBK. This is called the primary bond market since the bonds are being bought directly from the CBK (the issuer of the bond).
Buying bonds from the CBK happens like an auction. Interested parties place bids i.e. the interest rate you want to get on your bond and the CBK then decides which bids to accept and/or deny. Note that, it is in the best interest of CBK to pick the lowest bids since it means they will pay less interest to the bond holder. It is conversely in your interest to make the highest bids since it means you will receive more interest as a bondholder.
There are two types of bids that you can place:+
✔Non-competitive bid. This is a bid in which you as the bondholder accept the interest rate that the CBK gives for the bond. For any investor who invests less than Ksh 20m, you will have a non-competitive bid, meaning rather than you deciding the interest rate on your bond, the CBK will decide for you.
✔Competitive bid. This is a bid where you give the interest rate for the bond that you are willing to receive, and then the CBK will choose whether to accept your bid or not. If you are investing more than Ksh20m, you must have a competitive bid and choose an interest rate.
To buy bonds from the CBK, you do not need a broker, all you need is a bond application form, fill it in with your details and then deliver it to the CBK offices.
The CBK will then let you know on the Thursday after bidding closure date whether your bid was accepted or rejected, if accepted, you send the money to the CBK directly and now you will receive your interest payments every 6mnths on the bond and your invested money back at the end of the bond period.
Buying a Bond from the Primary Bond Market Process.
▢ Get bond application form from our offices/CBK or download it here.
▢ Fill in your application form with your details, the details of the bond that you want to buy, the amount you want to bid and the rate at which you want to bid if a competitive bid.
▢ Get bond application form from our offices/CBK or download it here.
▢ Fill in your application form with your details, the details of the bond that you want to buy, the amount you want to bid and the rate at which you want to bid if a competitive bid.
(NOTE: We provide bidding range advice in case you are unsure of what rate to bid)
▢ After filling in the form, either deliver the form to the CBK directly or to our offices after which we will deliver the filled form to the CBK on your behalf.
▢ Await the results of the bids to find out if your bid was accepted or rejected. Note that, for all non-competitive bids, your bod will be accepted, only competitive bids can be rejected. (The results are released two days after the bond closure date).
▢ Upon successful application, send cash from your bank to CBK directly and after, you will have your bond placed in your CDS Account.
▢ You will then receive coupon/interest payments every 6months in your bank account directly from CBK. i.e. the bank account that will receive the interest payments is the one that is mapped to your CDS Account.
▢ After filling in the form, either deliver the form to the CBK directly or to our offices after which we will deliver the filled form to the CBK on your behalf.
▢ Await the results of the bids to find out if your bid was accepted or rejected. Note that, for all non-competitive bids, your bod will be accepted, only competitive bids can be rejected. (The results are released two days after the bond closure date).
▢ Upon successful application, send cash from your bank to CBK directly and after, you will have your bond placed in your CDS Account.
▢ You will then receive coupon/interest payments every 6months in your bank account directly from CBK. i.e. the bank account that will receive the interest payments is the one that is mapped to your CDS Account.
NOTE: For competitive bids, the CBK can accept and/or reject the bid fully or in part and need not give a reason, so ensure you are clear how much has been accepted since it is not always the case that they accept your bid in full.
After bids are accepted, you have a small window to send your money to the CBK for the bond,i.e. deadline is the Monday following the results publish date.
Failure to send your money by this date will have your bid rejected and your CDS account suspended.
Other than buying a bond directly from the CBK, you can buy a bond from another bondholder. This occurs in the secondary bond market. Similarly, you can also sell your bond to another bondholder in the secondary bond market.
Buying/Selling a Bond from the Secondary Bond Market
How to buy/sell a bond from another bondholder in the secondary bond market.
To be able to buy/sell your bond in the secondary market, you must have a broker. There are a number of bond brokers that are authorized to transact in the secondary market.
After bids are accepted, you have a small window to send your money to the CBK for the bond,i.e. deadline is the Monday following the results publish date.
Failure to send your money by this date will have your bid rejected and your CDS account suspended.
Other than buying a bond directly from the CBK, you can buy a bond from another bondholder. This occurs in the secondary bond market. Similarly, you can also sell your bond to another bondholder in the secondary bond market.
Buying/Selling a Bond from the Secondary Bond Market
How to buy/sell a bond from another bondholder in the secondary bond market.
To be able to buy/sell your bond in the secondary market, you must have a broker. There are a number of bond brokers that are authorized to transact in the secondary market.
Now to get a broker, you must map your CDS Account to the broker's ID, so that the CBK knows that your broker is allowed to make transactions on your behalf (with your written authorization) since you are incapable of making secondary bond market transactions yourself.
To authorize a broker to transact on your behalf, you must sign an ATS registration form which will allow the CBK to map your CDS Account to that broker ID, thus allowing them to transact in the secondary bond market on your behalf upon your instructions. Find the ATS Form here.
After you fill in the ATS Form, the form is forwarded to the CBK and after a period (ordinarily 1 working day), you will be able to use that broker to transact in the secondary market.
▢ Select the bond and amount you want to buy and then give written instructions to your broker detailing the bond and amount you want to buy.
▢ Send cash to your broker's account to initiate the buying transaction
▢ Send cash to your broker's account to initiate the buying transaction
▢ Your broker then contacts the seller and pays seller the amount for the bond sale.
▢ Once the transaction is complete, the bond is then transferred from the seller's CDS account to your CDS account.
▢ After this you will receive bond payments from the CBK every 6 months (at the designated interest payment dates) in the bank account registered to your CDS Account.
NOTE: For secondary market deals, you do not send any money directly to the seller or CBK. You send your money to your broker who acts as the intermediary, sending the proceeds to the seller who afterwards sends the bond to your CDS Account.
Ensure your bond broker is a registered bond broker. As Private Wealth Capital, we are registered bond brokers and dealers, giving us the capacity to transact in the secondary market on behalf of our clients (broker duty) and even hold bonds on behalf of our clients (dealer duty).
Selling a Bond from the Secondary Bond Market Process.
Express your interest in selling your bond(s) to your broker and deliver your bond to broker.
Broker sources a buyer for your bonds and then negotiates terms on your behalf.
Once terms are agreed by both parties (bond buyer and you, the seller) the transaction is initiated.
Buyer will pay your broker and then the broker will transfer the proceeds to your bank account.
Your bond will also be transferred from your CDS account to the buyer's CDS Account.
NOTE: You will not receive any money directly from the CBK and/or bond buyer. Your broker will act as an intermediary and send you the cash from the buyer. You also will not directly negotiate with the bond buyer, the broker will do this on your behalf.
After selling your bond, you will no longer have it in your CDS Account and thus, you will not receive any interest payments from the CBK on that bond since the bond is no longer yours. It is the bond buyer who will now interest payments since the bond is now in their name and mapped to their receive the interest payments since the bond is now in their name and mapped to their CDS account.
Need Further Guidance
Are you looking to buy/sell your bonds in the primary or secondary market but don't know how to proceed? Contact us and we shall guide you through every step in the process.
Email:
Website
▢ Once the transaction is complete, the bond is then transferred from the seller's CDS account to your CDS account.
▢ After this you will receive bond payments from the CBK every 6 months (at the designated interest payment dates) in the bank account registered to your CDS Account.
NOTE: For secondary market deals, you do not send any money directly to the seller or CBK. You send your money to your broker who acts as the intermediary, sending the proceeds to the seller who afterwards sends the bond to your CDS Account.
Ensure your bond broker is a registered bond broker. As Private Wealth Capital, we are registered bond brokers and dealers, giving us the capacity to transact in the secondary market on behalf of our clients (broker duty) and even hold bonds on behalf of our clients (dealer duty).
Selling a Bond from the Secondary Bond Market Process.
Express your interest in selling your bond(s) to your broker and deliver your bond to broker.
Broker sources a buyer for your bonds and then negotiates terms on your behalf.
Once terms are agreed by both parties (bond buyer and you, the seller) the transaction is initiated.
Buyer will pay your broker and then the broker will transfer the proceeds to your bank account.
Your bond will also be transferred from your CDS account to the buyer's CDS Account.
NOTE: You will not receive any money directly from the CBK and/or bond buyer. Your broker will act as an intermediary and send you the cash from the buyer. You also will not directly negotiate with the bond buyer, the broker will do this on your behalf.
After selling your bond, you will no longer have it in your CDS Account and thus, you will not receive any interest payments from the CBK on that bond since the bond is no longer yours. It is the bond buyer who will now interest payments since the bond is now in their name and mapped to their receive the interest payments since the bond is now in their name and mapped to their CDS account.
Need Further Guidance
Are you looking to buy/sell your bonds in the primary or secondary market but don't know how to proceed? Contact us and we shall guide you through every step in the process.
Email:
Website
