How to Invest in Government Bonds in Kenya

How to Invest in Government Bonds in Kenya

So, you want to invest in a bond, but HOW? 

Read on for step-by-step instructions on how to buy government bonds in Kenya.

First though, what exactly is a bond and how does it work? 

A bond is a financial instrument that allows an entity or person to borrow money at a predetermined rate for a predetermined period of time. e.g. A company borrows KES. 1M ($10,000) for 2 years and promises to pay it back at a 10% annual interest rate. The interest rate and time (tenor) is fixed, unlike other forms of financial instruments that could allow for a change in rate or tenor. When the government is borrowing the money, this is known as a government bond. 

In Kenya, the government issues a bond every month and this is announced by the Central Bank of Kenya. The tenor ranges from bond to bond and can be anywhere from 1 year to 30 years. The minimum investment for bonds is between KES. 50,000 to KES. 100,000 depending on the bond you’d like to purchase. You can find info about open bonds on the CBK website

There are different types of bonds issued by the government of Kenya:  

  • Fixed coupon Treasury bonds - this is the most common type of bond. They pay a fixed interest rate and interest payments are made every six months. 

  • Infrastructure bonds are used by the government for specified infrastructure projects. These bonds are tax exempt.

  • Zero coupon bonds are similar to Treasury bills, in that they are sold at a discount and do not have interest payments. They are also typically issued for a shorter period of time.

In our online course, Investable, we go over these in greater detail. 

Next, how to invest in a bond

  1. Open a CDS Account with the Central Bank of Kenya. You only need to do this the first time you are buying Government bonds. You can do this by following the instructions outlined here. 

  1. Choose a bond. CBK issues a bond every month. You can check the CBK website periodically to find out what’s available when you are ready to invest. Alternatively, you can join our email list to get notified whenever a bond is issued. 

  1. Submit an application. Once you’ve identified the bond you are interested in, you need to apply for it - you can work with a stockbroker, agent or your bank to do this. Africa’s Pocket can help with this - just fill in your details here and we can guide you through the rest of the process. 

  1. Make your payment. If your application is successful, you then need to make a payment for your bond. Your broker or bank will share the exact details and amount to pay. 

  1. Enjoy your coupon payments. Most bonds pay interest every six months - this is always a wonderful notification to receive - the sweet taste of passive income. We recommend reinvesting this interest if you are still working towards financial freedom. 

Investing in government bonds is one of the most reliable ways to generate passive income.

- It requires little maintenance once the set up work is done.

- It’s a safe asset as it’s backed by the Government and

- In Kenya, the rates are pretty competitive (9-14% p.a.).

If you’d like to get started on investing in Government bonds, reach out and we’ll be happy to guide you through the process.  

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