• Treasury Bonds are debt contracts through which the government borrows from the public to support its budget.
• The government issues new bonds continually at a rate of about once a month to two months.
• Bonds have varying maturities/tenors upon issuance; from 2 years to 25 years.
• Bonds differ in their maturities, interest rates, interest payment dates, and tax status (infrastructure bonds are taxfree).
How do I earn through treasury bonds?
• Invest by buying in through the primary market or the secondary market (expounded in the section below)
• Earn through interest payments called coupons.
• The coupon is quoted as an annual rate but is paid in half every 6 months (every 182 days to be precise) from the date it was issued. If it was issued on 17th Dec 2024, it will next be paid on 17th Jun 2025, then 16th Dec 2025, and so on.
• Currently, the most ideal bond is paying between 17.9%, tax-free.
How do I invest?
• Through the Primary Market o This is where the Central Bank opens new bonds for auctions. The auction determines what the interest rate will be. Upon conclusion of the auction, the bonds are issued to investors and opened for trading in the secondary market.
• Through the Secondary Market o Bonds go into active trading on the Nairobi Securities Exchange. Investors can sell their bonds to willing buyers and buy desirable bonds that are actively trading.
What do I need to Invest?
• You need a DhowCSD account with the Central Bank. To trade in the secondary market you need a broker.
• Treasury bonds have a price in the secondary market. The price is determined by many factors, but chiefly the demand and supply of interested buyers and sellers. The price can be quoted as a unit price or as a yield (a discount rate). • Treasury bonds accrue interest continually. This interest is captured in what is called a ‘dirty price’, which is the sum of the bond’s price and the accrued interest. Therefore, active trading does not result in foregone interest earnings.
