Treasury bonds trade in the secondary market like stocks.
• Contrary to popular opinion, bonds needn't be held to maturity as they are liquid.
• The bonds that the CBK issues in the primary market go into trading in the secondary market about a week after they are issued.
• All that is needed to enter or exit a bond investment in the secondary market is a broker.
Treasury bonds are NEVER late on payments
Ever since the inception of the Kenyan bond market in the late 90s, the CBK has never been late nor failed to pay. Lateness or defaults would undermine the government’s ability to raise much-needed debt capital from investors. The bond markets are so integrated with the Kenyan financial industry that default would be catastrophic.
The addition of the SACCOs sector into the bond markets will increase integration, depth, and resilience within the financial industry.
Fixed-deposit accounts often hold bonds
Fixed deposit accounts in the banking sector are usually over-allocated to bonds, from which the saver gives up a 2%-3% margin on the grounds of liquidity provision. It’s an unnecessary expense since a broker would provide liquidity at rates that are much cheaper by magnitudes (0.04% or less).
Horizontal Repo Market
The horizontal repo market that was relaunched on March 27th will increase the depth and liquidity of the financial sector by enabling institutions to access cheaper short-term liquidity subject to offering collateral in the form of treasury bonds.
