Looking for a low-risk investment asset to pack your money? How about Treasury bills by the Kenyan Government? Treasury bills, simply referred to as T-bills, are short-term government securities. As short-term investment assets, they carry a maturity period of less than 1 year, making them an excellent option for your short-term goals. 

While I have talked before about government securities here and treasury bonds (T-bonds) in detail, I would like to purposefully dedicate this article to T-bills. So, if you have been wondering what’s the difference between bonds and bills, you’ve come to the right place. In this article, I will talk about what treasury bills are, how much you need to invest, how you can invest, and the advantages and disadvantages of using them as an investment avenue. 

Treasury Bills 101

Treasury bills are debt instruments issued by a government to raise funds. What this means for you as an investor is that by investing in T-bills, you simply lend money to the government. They are also short-term instruments with varying dates of less than a year.

The Central Bank of Kenya (CBK) issues 3 types of bills, 91-day, 182-day, and 364-day treasury bills. With this, you can plan whether you want to lend your money to the government for 3, 6, or 12 months. 

Besides the horizon, it’s important to note that bills are sold at a discount. How does this work? It means that when bidding, you indicate the amount that you want to receive at maturity, i.e., the bill’s face value. However, when your bid is successful, you will purchase the bill at a lower or discounted price. The difference is your interest return. For example, If you bid a face value of KSh. 100,000 at a discounted rate of 10% for a 91-day bill, you will pay KSh. 90,000 to the CBK. At maturity, that’s after 91 days, the CBK will pay you KSh. 100,000. The KSh. 10,000 difference will be your return. 

PS: CBK has an easy-to-use online calculator to help you estimate the price of a T-bill. 

Finally, T-bills are auctioned every week. This provides you with a consistent opportunity to invest your funds. If you don’t have enough funds to invest, you don’t have to feel regret for missing a once-in-a-lifetime opportunity. You can take your time, save money, and watch out for available bills every week. 

How Much Do I Need to Invest in Kenyan Treasury Bills? 

How much you need to invest will depend on whether you are placing a competitive or non-competitive bid. Non-competitive bids are when you don’t quote your preferred interest rate. The minimum investment amount for these bills is KSh. 50,000 and a maximum of KSh. 50M. With a competitive bid, you can quote your expected interest rate. However, the minimum investment amount is higher, at KSh. 2,000,000.

T Bonds vs T Bills

Now that you know what T-bills are, let’s have a quick look at the difference between T bonds vs T bills. 

Unlike treasury bills, treasury bonds have a longer maturity of more than a year, usually 5+ years. Some bonds will have maturity periods of up to 30 years, making them ideal for longer-term goals, like retirement planning. 

Having said that, it’s important to note that CBK usually reopens bonds that are already in the market. These come with a shorter investment period since the bond is already continuing. The period can be as short as 3 years. Still, the maturity period will still have a longer horizon than that of T-bills. 

The second difference between bonds and bills is in the repayment of your interest return. While T-bonds afford you regular coupon payments, every 6 months, T-bills do not have regular interest returns. Instead, you will have to wait until the bill’s maturity to receive the quoted face value, which is more than the purchase value (discounted buying price). Your return is the difference between the face value and the discounted purchase value. 

The third notable difference is the trading of the securities in the secondary markets, i.e., the Nairobi Securities Exchange (NSE). Treasury bonds are traded at the secondary market, allowing you to sell your bond if you really need to liquidate to meet needs or capitalize on the price increase. Similarly, investors who miss their chance at buying the bonds in the primary market (during bidding), can buy it in the secondary market. However, T-bills are not traded in the secondary market. That means you have to hold it until maturity. 

The final difference between bills and bonds is the availability of these securities for investing. CBK auctions T-bills weekly, so you have an opportunity to invest in a bill every week. With bonds, CBK only auctions them monthly. 

Benefits of Investing in Bills

There is a reason T-bills are popular among investors. Here are some of the key benefits to consider:

• Affordability – the minimum investing amount is KShs. 50,000 for a non-competitive bid. This makes T-bills quite affordable.  
• Low investment risk – one of the key advantages of T-bills is their low risk. As government security, they have one of the lowest risks, making them an ideal choice for the risk-averse. 
• Short investment horizon – with maturity periods of 3, 6, and 12 months, T-bills allow you to save or invest for your short-term goals. This makes them ideal for goals such as emergency fund savings, travel funds, etc. 
• Portfolio diversification – portfolio diversification allows you to spread your investment risks. Since treasury bills have a low correlation with other asset classes, like real estate and stocks, they are great for mitigating your portfolio’s risk. 
• Competitive returns – T-bills have great returns for a short-term investment asset. As of the publishing of this article, the latest T-bill had an average return of 16.6218%, 16.7849%, and 16.9722% for the 91, 182, and 364-day T-bills. As you can see, the longer the duration, the higher the return, i.e., the year-long T-bill has a higher return than the others. While the 6-month T-bill has a higher return than the 3-month T-bill.

Disadvantages of Investing in Bills

While T-bills pose a lower risk than other investment assets, they still do have a few disadvantages. 

• Low returns – the return is lower than you’d get from riskier asset classes, like stocks and real estate. 
• Low liquidity risk – because they are not traded in the secondary market, you have to hold your Treasury bill investment to maturity. 

How to Invest in Kenyan T-Bills

Are we still together? Now, let’s talk about how you can start investing in bills and earn some money. 

DIY Investing

One option is to do it on your own, without using an intermediary. This will save you the money you’d otherwise pay the intermediary for the service. To do this, you will need a CSD account with the CBK (see the next section about getting a CSD account). You also need to have a bank account with a local commercial bank. 

Once your account is set up, log in to your DhowCSD account using the app or portal. An alternative to the DhowCSD is the Treasury Mobile Direct (CBK-TMD), which uses a USSD code. Using both of these options, you can see securities that are on offer, including Treasury bills. Choose your preferred investing option, place your bid, and wait for a message about whether your bid was successful. 

If your bid was successful, you will receive payment details from the CBK, including how much to pay and the payment reference. All these details will be available in your DhowCSD account. 

Using an Intermediary

If you don’t have a CSD account, don’t wish to open one, or don’t want to spend time doing it yourself, you can use an intermediary to do the investing on your behalf. This can be through your commercial bank or an investment bank. However, this will be at a fee.  

@enidkathambi Do you need a CBK CDS account to invest in government securities? #investing #investment #bonds #treasurybonds #personalfinance #financialplanning #financialfreedom #financialliteracy #financialeducation #treasurybondskenya #personalfinancetips ♬ original sound – FA Enid

How to Open Your CBK CSD Account

CBK has made the opening of CSD accounts very efficient, thanks to the DhowCSD app or portal. Ensure that you have important documents readily available, like your ID and passport photo for easier upload. 

Alternatively, you can use the manual method. Visit the CBK branch that’s close to you and pick up the Mandate Form, fill it out, attach the necessary documents, and drop it off at the branch. If you are a Kenyan living abroad, CBK has the Mandate Form online and an email address where you can send your application form.