What is a Treasury bond?
Treasury Bonds are medium to long term debt instruments, usually longer than one year issued by the government to raise money in local currency. Maturities of Treasury Bonds that have been issued so far range from 1-30 years.
What Types of Treasury Bonds Issued by Government of Kenya?
The types of Treasury bond may be defined by the purpose, interest rate structure, maturity structure, and even by issuer. So far, the Government has issued Fixed Coupon/Rate Bonds, Zero Coupon, Floating Rate, Infrastructure (project specific), Restructuring/Special bonds, and Amortized and savings development bonds. Most commonly issued bonds are fixed coupon bonds which have huge investor demand. Treasury bonds are issued monthly.
Fixed coupon Treasury bonds – Bearpredetermined or market derived fixed coupon (interest) which is paid semiannually on the face value held during the life of the bond. When bought at a discount (required yield higher than coupon), investor benefits from discount (capital gain) which is critical for secondary market trading and regular interest payment.
Infrastructure bonds – Proceeds are used to fund specific infrastructure/projects specified in the prospectus.
Floating Rate Bonds – Pay semiannual interest based on a benchmark rate, for example average rate of 91-days or 182-days Treasury bill plus some margin. They are on high demand in high inflationary environment. They are no longer issued by the Government since 2001, most corporate bodies issue them.
Zero Coupon Bonds – Do not have fixed interest and investor’s return is only the discount amount equivalent to the yield quoted. Mostly short term and most taken up by commercial banks.
Who can invest in Treasury bonds in Kenya?
Please note that a non-Kenyan investor who is NOT domiciled in Kenya can invest in Kenya Government Treasury bonds as a NOMINEE of either a local commercial bank, investment bank or stock broker. Non-Kenyan investors domiciled in Kenya can however invest directly by opening CDS account at CBK.
How Can an Investor Determine the Price Payable and Return on T.bonds?
The price of a bond is determined by the time to maturity (t), the coupon rate and the quoted yield to maturity.