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Treasury bills and bonds, unravelling the government investments

By Muthengi Kenneth

Nandi Hills Member of Parliament Alfred Keter was on 16th February 2018 arrested over alleged fake treasury bills worth 633 million Kenyan shillings, while most Kenyans applauded the authorities for cracking the whip, very few Kenyans really understand what bills and bonds are.

The confusion or the lack of know-how spreads across better part of the nation’s population with many only remembering the recent Eurobond scandal.

What are bills and bonds?

They are short term investments for the public, auctioned by the Central Bank every week. The bills are sold at a discount, meaning you invest less than what you will receive at the end of stipulated time, usually quarterly, half or at the end of one year. The minimum amount you can receive in returns is 100,000 depending on the interest rates you get to invest less than that.

Bonds are slightly different in the mode of returns and investments periods. Unlike T-bills, treasury bonds are long term investments that are auctioned monthly by the treasury which give interest payments every 6 months.
The interest rate remains constant throughout the bond lifetime as at the time of investment. For example, if you invest 1 million in bonds at an interest rate of 10 %, you will have 100,000 deposited into your account every 6 months for the period the bond is valid. At the end of the bond lifetime, you will receive the normal interest payment plus initial investment. You can choose to withdraw or invest in another bond.

The Eurobond is basically treasury bonds open to international investors; the transactions are done in an international currency like the dollar, yen or euro among others. Investors lend the treasury a sum of let’s say 100 million dollars for a period of 5 or 10 years at a particular interest i.e. 6 %. The government then gives the investors a piece of paper called the bond. The government then pays in the same formula as treasury bonds. The last Eurobond auctioned in 2018 in London will cost the government 323 billion Kenyan shillings in interest payments over a span of 30 years.

As an individual or a corporate body you can invest in the treasury bills and bonds. It is the safest investments since the government acts as security. The requirement is for you to hold an account with any Kenyan commercial bank or be nominated by an investment or commercial bank though the latter attracts additional charges. More information about the actual process of buying the bills or bonds can be found on www.centralbank.go.ke

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