29 Questions you need to know about (Treasury Bills and Bonds)
1. What are Kenyan Treasury Bills?
Kenyan Treasury Bills (T-Bills) are short-term government securities issued by the Central Bank of Kenya on behalf of the National Treasury. They are typically issued with maturities of 91, 182, and 364 days and are used to help manage the country’s short-term funding needs.
2. How do Treasury Bills work?
Investors purchase T-Bills at a discounted price; they receive the face value upon maturity. The difference between the purchase price and the maturity value is the investor's return.
3. Who can invest in Treasury Bills?
Both individual and institutional investors can invest in Kenyan T-Bills. This includes citizens, residents, and foreign investors.
4. What is the minimum investment for Treasury Bills?
The minimum investment for Treasury Bills in Kenya is Ksh 100,000.
5. How are T-Bills issued?
T-Bills are issued through an auction process held by the Central Bank of Kenya. Investors can place bids electronically through their banks, and the bids are accepted based on yield and amount.
6. Can Treasury Bills be traded on the Nairobi Securities Exchange as collateral?
Treasury Bills aren't traded on the Nairobi Securities Exchange but can be used as collateral for loans and transferred among CDS account holders. Treasury bonds, backed by the government's credit, are highly secure and may also serve as collateral for loans, although some lenders may prefer them over corporate bonds due to their safety.
7.What are the implications if I decide to sell a bond before its maturity date?
Withdrawing from a bond investment before its maturity date may result in potential financial consequences, such as receiving a lower return than anticipated or incurring transaction fees. Additionally, market conditions at the time of sale could impact the selling price of the bond.
8.Are the returns from bonds or bills better than what we get from a Sacco?
The returns from bonds or bills may vary depending on market conditions and the specific terms of the investment. It's essential to compare the potential returns offered by bonds or bills with those provided by a Sacco to determine which option may be more beneficial based on individual financial goals and risk tolerance.
9.Is it possible to invest in both bills and bonds simultaneously?
Yes, it's possible to invest in both bills and bonds at the same time. Investors can diversify their portfolio by allocating funds to both types of securities. Additionally, investors have the flexibility to invest different amounts in bonds or bills based on their financial goals and preferences.
Investors have the option to diversify their investment portfolio by simultaneously investing in both Treasury bills and Treasury bonds. Furthermore, they can tailor their investments by allocating varying amounts to bonds or bills based on their financial objectives and risk tolerance.
10. How is the interest on Treasury bills calculated?
Interest is calculated based on the difference between the purchase price and the face value of the bill. The yield is determined at the auction and varies based on market demand.
11. Are Treasury Bills safe investments?
Yes, T-Bills are considered low-risk investments since they are backed by the government of Kenya. The likelihood of default is very low, making them a secure option for investors.
12. How can I buy Treasury Bills?
Investors can buy T-Bills through banks or financial institutions that are approved by the Central Bank of Kenya. They can also invest directly through the CBK’s digital platforms.
13. What are the tax implications for Treasury Bill investments?
The interest earned from T-Bills is subject to a withholding tax, which is currently set at 15% for individuals. It's important to consult a tax advisor for specifics regarding individual circumstances.
14. Can Treasury bills be sold before maturity?
Yes, T-Bills can be sold in the secondary market before maturity. However, the selling price will depend on prevailing market conditions and interest rates.
15. What is the primary purpose of issuing Treasury Bills?
Treasury Bills are issued to help the government finance its short-term budgetary needs, manage liquidity in the economy, and serve as a tool for monetary policy implementation.
16. How often are Treasury Bills auctioned?
Treasury Bills are auctioned regularly, typically every week. The Central Bank of Kenya publishes a calendar of the auction dates.
17. What are the risks associated with investing in Treasury Bills?
While T-Bills are considered low-risk, they are still subject to interest rate risk, meaning if interest rates rise, the value of existing T-Bills might decrease if sold before maturity. However, default risk is negligible since they are government-backed.
18. Can foreign investors buy Kenyan Treasury bills?
Yes, foreign investors can invest in Kenyan Treasury Bills, although they must comply with regulatory requirements set by the Central Bank of Kenya.
19. What role does the Central Bank of Kenya play in Treasury Bills?
The Central Bank of Kenya is responsible for issuing, managing, and conducting auctions for Treasury Bills. It also oversees the implementation of monetary policy using these instruments.
20. How are interest rates on Treasury Bills determined?
Interest rates, or yields, on T-Bills are determined through the bidding process during the auctions, influenced by demand, market conditions, and prevailing interest rates in the economy.
21. Can I invest in T-Bills through a broking firm?
Yes, many broking firms facilitate the purchase of Treasury bills on behalf of investors. Ensure the firm is registered with the Central Bank of Kenya.
22. What happens at maturity?
At maturity, the government pays the face value of the T-Bill to the holder. Interest has already been earned, given that T-Bills are purchased at a discount.
23. How do I track the performance of my Treasury Bill investment?
Investors can track their investments through the Central Bank of Kenya’s online platforms or via their banking institutions that facilitate the investments.
24. What are competitive vs. non-competitive bids in T-Bill auctions?
In competitive bids, investors specify the yield they are willing to accept, while in non-competitive bids, investors accept the average yield determined by the auction. Non-competitive bids guarantee acquisition of T-Bills as long as they do not exceed the total amount being issued.*
25. Can T-Bill investments contribute to my retirement savings?
Yes, T-Bills can be a good component of a conservative investment strategy for retirement savings, as they provide steady, albeit modest, returns with low risk.
26. What are the liquidity options for T-Bills?
T-Bills can be liquidated before maturity through the secondary market. Investors can sell their T-Bills to other buyers, though prices may fluctuate based on current market conditions.
27. Are there any fees associated with buying or selling Treasury bills?
While there may be no fees from the government, banks or brokers may charge service fees for processing transactions related to T-Bills.
28. Can I hold Treasury Bills in a specific type of account?
Yes, T-Bills can be held in various accounts, including individual investment accounts or retirement accounts, depending on the financial institution's policies.
29. How does inflation affect Treasury bills?
Inflation can erode the real return on Treasury bills. If inflation rises significantly, the purchasing power of the returns may decline, which investors should consider when evaluating T-Bill investments.
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