INVESTING IN BONDS

The president was at the Central Bank today, the main aim of the visit was to discuss investment opportunities. In my opinion, I find the president’s message useful because he has urged the Central bank to make investment open for all Kenyans to Invest. Kenyans in the Diaspora will have an easy time investing back at home since the process has been digitized simply. This is an investment that one is 100% sure of their returns other than individuals getting duped their hard-earned money. Central Bank guarantees each individual who invests an equal share of profit percentage. There will be no cases of unequal treatment of receiving the return on investment. That is if the percentage is 13% amount all amounts invested by individuals will attract the same profit. This is a great opportunity for Kenyans who would want to invest and I am hoping many more will learn that it will be easier for us to lend the government money other than the government borrowing money from external sources. Lending money to the state will help reduce the country’s debt baggage. This will be a win-win situation since the percentage profit of the sum invested by each individual attracts great interest.

Here is a step-by-step guide on how to invest in treasury bonds through the Central Bank of Kenya.

Open a CDS account, first

Opening a CDS account with the Central Bank is the initial step in investing in Treasury bills. These accounts, which the Central Bank uses to keep track of who owns what government securities, are free to open. You only need to do this step the first time you invest since once you have your CDS account—which can be opened for either an individual or a corporate entity—you can invest in several Treasury bills and bonds.

A Kenyan commercial bank account is required to open a CDS account. Mandate cards are available from the Central Bank or any of its branches, and they must be filled out in clean block letters. Information regarding your business bank account and your contact details are required. To validate the data you’ve provided, the card must be signed by two representatives from your commercial bank.

A passport-sized photo of you that has been certified and stamped by a representative from your commercial bank must be included with your mandate card when submitting it.

A clear copy of your national identification card, passport, or alien certificate must also be included with your application.

To present, the number of years available for Treasury bonds has ranged from one to thirty. You must think about the bonds that will be offered at the future auction as well as the length of the commitment you are willing to make when selecting a bond to invest in.

Various bond types are typically made accessible, including:

Infrastructure bonds are used by the government for specific infrastructure projects. The majority of bonds that the Central Bank auctions are fixed coupon Treasury bonds, which means that the interest rate associated with the bond won’t change over the bond’s life. Due to the tax-free nature of their dividends, these bonds often attract a lot of market interest.

In that they are sold at a discount without interest payments, zero coupon bonds are comparable to Treasury bills. Additionally, they are normally only given out for a brief time.

When you are prepared to invest, you should start keeping an eye on the prospectuses for upcoming bonds to identify the best option for you. The prospectus contains details on the various bonds being offered, including the tenor, or length of time to maturity, and the coupon rates.

You may find information on amortization for loans that are more often used. When the government anticipates a bond will generate a sizable investment, it will employ amortization to lighten its load when the bonds mature. By amortizing a bond, the Treasury distributes payments to investors over time rather than in one lump sum after the bond’s tenor. Investors receive fewer interest payments as a result of the smaller quantity of money being kept by the Treasury after these sections have been returned to investors.

Fill out and send in the application form

When you are prepared to invest, you must fill out an application for Treasury bonds.

This comprises details about the Treasury bond you wish to buy, such as the issue number, the maturity date, and the amount you want to invest in face value. Additionally, it contains details about you, such as your name, contact information, CDS account number, commercial bank account number, and whether the monies you are investing come from domestic or foreign sources.

The proportion of your face value investment that you will receive in interest payments every two years can be chosen from two options on the application form. You should select Non-Competitive/Average Rate if the prospectus for the bond specifies a predetermined coupon rate. You can choose between the Interest/Competitive Rate and the Non-Competitive/Average Rate if the prospectus states that the coupon rate is market-determined.

By providing the coupon rates they would want to have for that bond, investors pick the Interest/Competitive Rate bid on the bonds. The Central Bank chooses which bids it will accept after which it calculates the non-competitive/average rate for investors by averaging those rates.

The Rollover Instructions are the last section on the application form. Investors holding maturing bills and bonds can utilize their returns to buy additional government assets, making it simple to facilitate reinvestment.

Dates for the bond’s sale period will be listed in the prospectus. By 2 p.m. on Tuesday of the final week of the bond’s sale period, you must deliver your application to the Central Bank’s headquarters or one of its branches.

4. Receiving the auction outcomes

On the days of the auction, the Central Bank’s Auction Management Committee (AMC) meets at 4 p.m. to decide the cut-off rate and the weighted average of the accepted bids for bonds with market-determined coupon rates. The auction results are made public via Twitter, Treasury Mobile Direct (TMD), and our statistics page on the CBK website. The Central Bank can issue bonds in a lower quantity, though investors normally receive Treasury bonds in the amount they applied for.

Investors must phone or visit the Central Bank or its branches after the auction to find out whether their applications were approved and how much they owe for their Treasury bonds.

If you have applied, you must get in touch with the Central Bank to find out how much you will be required to pay. This payment must be made by 2 pm on the next Monday, or the following Tuesday if the following Monday is a holiday.

5. Payment

An auction’s payment window normally concludes at 2 p.m. on the Monday after. In the sums provided when investors contact the Central Bank, payments can be made in cash or banker’s checks for amounts under Kshs 1 million and through a KEPSS transfer for greater amounts.

Successful applicants who don’t send payments on time may be prohibited from investing in government securities in the future.

6. Maturity Continues

For the duration of the bond’s tenor, the investor who purchases a Treasury bond will receive interest payments semi-annually into the commercial bank account listed on the CDS account. The investor will get both the bond’s face value and the final interest payment at maturity. Investors may also decide to roll over their security into a new, upcoming issue; in this instance, they must complete the application form with rollover instructions and submit it to the Central Bank before the end of the bond’s sale period. For the rollover instruction to be effective, both the maturity date of the maturing security (investment) and the value date of the new bond MUST MATCH. Therefore, the Bank does not deposit face value into an investor’s account but simply sends refunds for previously made investments.