Table of Contents
- Introduction
- What Are Treasury Bills and Bonds?
- Treasury Bills
- Treasury Bonds
- How They Work in Kenya
- Auction Process
- Account Requirements
- Early Exit Options
- Benefits of Investing
- Risks and Considerations
- Treasury Bills vs Treasury Bonds (Comparison Table)
- Kenyan Market Context
- Current Yields and Rates (September 2025)
- Sample Investment Portfolios
- Balanced Portfolio
- Higher-Yield Portfolio
- Smart Investing Tips
- Case Study: The Financial Baobab Tree
- The Big Picture
- Final Thoughts
- Frequently Asked Questions (FAQ)
When people think of safe and reliable investments, government securities are often at the top of the list. In Kenya, two of the most popular government securities are Treasury Bills (T-Bills) and Treasury Bonds (T-Bonds). They are issued by the National Treasury and administered by the Central Bank of Kenya (CBK). These securities allow the government to raise money to fund its budget, while providing investors with stable, predictable returns.
For individuals, companies, and institutions, Treasury Bills and Bonds in Kenya are more than just financial instruments — they are tools for wealth preservation, income generation, and financial planning. This article takes you through everything you need to know: definitions, how they work, benefits, risks, current yields, and even sample investment portfolios to help you decide how to get started.
Understanding Treasury Bills and Bonds
What Are Treasury Bills?
Treasury Bills are short-term debt instruments issued by the government. When you invest in a T-Bill, you’re essentially lending money to the government for a short period — either 91 days (3 months), 182 days (6 months), or 364 days (1 year).
Unlike a bank deposit that pays interest monthly, T-Bills don’t pay interest directly. Instead, they are sold at a discount. For example, you might pay KSh 96,000 for a T-Bill with a face value of KSh 100,000. At maturity, the government pays you the full KSh 100,000. The difference (KSh 4,000) is your earnings.
- Minimum investment: KSh 50,000.
- Maturities: 91, 182, and 364 days.
- Liquidity: Not traded in the secondary market. Early exit is possible only through rediscounting with the CBK, usually at less favorable terms.
- Best for: Investors seeking short-term, safe, and predictable returns.
What Are Treasury Bonds?
Treasury Bonds, on the other hand, are long-term government securities, with maturities ranging from 1 year to 30 years. When you buy a bond, you lend money to the government for that period. In exchange, the government pays you semi-annual interest (coupon payments), and at maturity, you get back your principal.
For example, if you buy a KSh 500,000 bond with a 13% coupon rate, you’ll receive KSh 32,500 every six months until maturity, plus your KSh 500,000 principal at the end.
- Minimum investment: KSh 50,000.
- Maturities: 1 to 30 years.
- Liquidity: Tradable on the secondary market and can also be rediscounted with CBK.
- Best for: Long-term investors seeking stable income and higher yields.
How Treasury Bills and Bonds Work
The Auction Process
The CBK conducts regular auctions for both T-Bills and T-Bonds. Investors submit bids, either competitively (specifying the interest rate they want) or non-competitively (accepting the average rate).
- For T-Bills: You buy them at a discount and receive the face value at maturity.
- For T-Bonds: You buy them at par or a negotiated price, receive semi-annual coupon payments, and reclaim your principal at maturity.
Account Requirements
To invest directly, you need:
- A bank account in Kenya.
- A Central Depository System (CDS) account at the CBK. This account holds your securities electronically. Opening it is free.
Early Exit Options
- T-Bills: Only through rediscounting at the CBK.
- T-Bonds: Tradable on the secondary market (Nairobi Securities Exchange), or rediscounted.
Advantages of Investing in T-Bills and T-Bonds
- Safety: Backed by the Kenyan government, these securities have minimal default risk.
- Predictable Income: Bonds offer steady semi-annual coupon payments.
- Inflation Protection: Long-term bonds often yield higher returns that can outpace inflation.
- Flexibility: Wide range of maturities lets you match investments with goals.
- Accessibility: Minimum investment of KSh 50,000 makes them accessible to individuals.
- Tax Benefits: Certain bonds, like infrastructure bonds, may be tax-exempt.
- Diversification: A safe way to balance portfolios with riskier investments like stocks or real estate.
Risks and Considerations
- Inflation Risk: Rising inflation can erode real returns.
- Interest Rate Risk: If rates rise after you buy, the market value of your bond may fall.
- Liquidity Risk: Finding a buyer in the secondary market isn’t always guaranteed.
- Opportunity Cost: Tying up money here may mean missing higher returns elsewhere.
- Reinvestment Risk: When short-term bills mature, future rates may be less favorable.
- Policy Risk: Tax laws and CBK regulations can change, affecting returns.
Treasury Bills vs Treasury Bonds
| Feature | Treasury Bills | Treasury Bonds |
|---|---|---|
| Maturity | 91, 182, 364 days | 1–30 years |
| Return Mechanism | Buy at discount, redeem at face value | Semi-annual coupon + face value |
| Liquidity | Rediscount only | Tradable + rediscount |
| Best for | Short-term investors | Long-term wealth builders |
| Sensitivity to Rates | Low | High (especially for long bonds) |
The Kenyan Market Context
Treasury securities don’t exist in a vacuum — their attractiveness depends on inflation, interest rates, and government borrowing.
- Inflation: High inflation leads to higher yields demanded by investors.
- Interest Rates: When CBK raises its benchmark rate, yields on government securities usually rise.
- Government Borrowing: Large deficits often mean more bond issuance, pushing yields up.
- Liquidity: Some bonds are highly traded; others are thinly traded, affecting resale options.
Current Yields and Rates in Kenya (September 2025)
As of recent auctions and market updates:
- 91-day Treasury Bill: ~7.97% per annum.
- 182-day Treasury Bill: ~10% per annum (varies).
- 364-day Treasury Bill: 10–11% range.
- 10-year Treasury Bond: ~13.43% yield.
- 12-year reopened bond: 13.2% coupon.
- 18-year reopened bond: 13.4% coupon.
- Other long-term fixed coupon bonds: Coupons range from 12.7% to 14.2%.
Sample Investment Portfolios
Portfolio Option A: Balanced Strategy (KSh 1,000,000)
- KSh 400,000 in 91-day T-Bills (rolled over 4 times at ~7.97%).
- KSh 300,000 in a 10-year bond (~13.43%).
- KSh 300,000 in a 12-year reopened bond (~13.2%).
Expected Return After One Year: ~KSh 111,770 (≈11.2% p.a.).
Portfolio Option B: Higher Yield Strategy (KSh 1,000,000)
- KSh 300,000 in a 10-year bond (~13.43%).
- KSh 400,000 in an 18-year reopened bond (~13.4%).
- KSh 300,000 in 91-day T-Bills (~7.97%).
Expected Return After One Year: ~KSh 105,800 (≈10.6% p.a.).
Smart Investing Tips
- Ladder Investments: Spread across different maturities to manage risk.
- Reinvest Coupons: Compound your returns by reinvesting interest.
- Match Goals with Duration: Use T-Bills for short-term needs, T-Bonds for long-term plans.
- Diversify: Combine different maturities and instruments.
- Stay Informed: Monitor CBK auctions, interest rates, and inflation reports.
- Know Tax Rules: Some bonds are tax-exempt; always check.
- Hold to Maturity: Avoid early exits unless absolutely necessary.
Case Study – The “Financial Baobab Tree”
One Kenyan bank likens Treasury Bonds to a baobab tree:
- They grow slowly but steadily, much like the predictable coupon payments.
- They are resilient and provide “shade” — stability and protection for your finances.
- A forest of baobabs (a diversified bond portfolio) offers long-lasting financial security.
T-Bills, on the other hand, are more like shrubs — quick to grow, useful for short-term needs, but not as enduring. Together, they balance your financial ecosystem.
The Big Picture
- T-Bills: Best for short-term, safe, and liquid savings.
- T-Bonds: Best for long-term income and wealth building.
- Combination: Offers liquidity, safety, and strong returns.
With Kenya’s current yields, investors have attractive opportunities: T-Bills at ~8–10% and Bonds at ~13–14%. By combining both, you can achieve a balance of liquidity and long-term growth.
Final Thoughts
Treasury Bills and Bonds in Kenya are reliable, government-backed investments that offer security, predictable returns, and flexibility. While they won’t deliver explosive growth like stocks or real estate, they are the foundation of a solid financial strategy.
Think of T-Bills as quick-growing shrubs and T-Bonds as mighty baobabs. Together, they create a financial forest — one that shelters you from risk, provides steady returns, and grows stronger with time.
If you want to secure your financial future, planting these “trees” today is one of the smartest moves you can make.
Frequently Asked Questions (FAQ)
1. What is the minimum investment for Treasury Bills and Bonds in Kenya?
The minimum investment is KSh 50,000 for both Treasury Bills and Bonds.
2. Who can invest in Treasury Bills and Bonds?
Kenyan citizens, resident individuals, corporate entities, pension funds, financial institutions, and even foreign investors (through licensed agents) can invest.
3. How do I start investing?
You need:
- A bank account in Kenya.
- A Central Depository System (CDS) account with the Central Bank of Kenya.
Once set up, you can submit bids during CBK auctions through your bank.
4. How do Treasury Bills generate returns?
T-Bills are sold at a discount and redeemed at face value. The difference is your profit. For example, buy at KSh 96,000, receive KSh 100,000 at maturity → KSh 4,000 return.
5. How do Treasury Bonds generate returns?
T-Bonds pay semi-annual coupon interest at a fixed rate, plus the return of principal at maturity. For example, a 13% bond pays 6.5% every six months on the principal.
6. Can I sell my Treasury Bonds before maturity?
Yes. Bonds can be sold on the secondary market (Nairobi Securities Exchange) or rediscounted with CBK. However, prices depend on market conditions.
7. Can I sell Treasury Bills before maturity?
Not on the secondary market. Early exit is only possible through rediscounting at CBK, usually at less favorable terms.
8. Are Treasury Bonds in Kenya tax-free?
Some are. Infrastructure bonds are often tax-exempt, while others may be subject to withholding tax. Always check the terms of each issue.
9. What are the current returns in Kenya?
As of September 2025:
- 91-day T-Bill: ~7.97%
- 182-day T-Bill: ~10%
- 364-day T-Bill: ~10–11%
- 10-year Bond: ~13.43%
- Long-term Bonds: 13.2–14.2%
10. Are Treasury Bills and Bonds safe?
Yes. They are considered low-risk because they are backed by the Government of Kenya. However, risks such as inflation and interest rate fluctuations still apply.
11. Can I invest in T-Bills and Bonds if I live abroad?
Yes. Kenyan diaspora and foreign investors can participate through licensed commercial banks or investment agents in Kenya.
12. Should I choose T-Bills or T-Bonds?
It depends on your goals:
- T-Bills: Best for short-term savings and liquidity.
- T-Bonds: Best for long-term income and wealth building.
Many investors combine both for balance.
13. How do I reinvest my earnings?
Coupon payments (from bonds) and matured T-Bill proceeds can be reinvested in new securities. This reinvestment strategy helps compound your returns over time.
14. What is rediscounting?
Rediscounting is the process of selling your T-Bills or T-Bonds back to CBK before maturity. This provides liquidity but usually at a reduced return.
