Investing In Treasury Bills: A Complete Guide For Beginners

Treasury Bills are short-term investments with a maturity period of 91, 182 or 365 day periods. This means that as an investor, you will receive your returns on investment within 3, 6 or 12 months.

The government auctions the Bills weekly through the Central Bank of Kenya. You can invest in Treasury Bills through the Central Bank or a commercial or investment bank if you hold an account with the respective institutions.

Investing in Treasury Bills

Here is a detailed step-by-step guide to help you start investing in Treasury Bills through the Central Bank.

1. Open a CDS Account

Before investing in Treasury Bills, you need to have a CDS account with the Central Bank. It is free to open one, and it is how the Central Bank keeps track of who holds which government securities.

To open a CDS account, you must have a bank account with a Kenyan commercial bank. You also need to collect a mandate card from the CBK and fill it out in block letters. 

You will need to fill in your contact information and information about your commercial bank account on the mandate card. You’ll also need to have two signatories from your bank sign the card to verify the information you’ve provided.

When submitting your mandate card, you’ll need to submit a passport-sized photograph of yourself, which must be certified and stamped by a representative from your commercial bank.

Finally, you’ll also need to submit a clear copy of your National Identity Card, passport, or alien certificate.

2. Decide How You Want to Invest

Treasury Bills are offered every week, with maturities of 91 days, 182 days, and 364 days. This means that when you are ready to invest, you will be able to choose from one of those options. 

You should decide on a maturity length based on the recent interest rates, which can give you an idea of what to expect in upcoming auctions and how long you can commit your funds for.

The minimum amount you can invest in Treasury Bills is Ksh 100,000, and you must invest in denominations of Ksh 50,000. Because Treasury Bills are sold at a discount, this amount is what you will receive at the end of the 91, 182, or 364-day maturity. Your initial investment will be less than the face value.

3. Complete and Submit an Application Form

When you are ready to invest, you need to complete a Treasury Bill application form. This includes information about the Treasury Bill you want to purchase, the issue number, the maturity period, and the amount you wish to receive upon maturity. 

You will also need to fill in your personal information, CDS account number, and whether your investment funds come from a local or offshore source.

You have two options for selecting a rate on the application form, which determines how much you will pay for the bill and, therefore, what your return will be when the bill matures. 

You should select either the Interest/Competitive Rate or the Non-Competitive/Average Rate.

• Investors who choose the Interest/Competitive Rate bid on the Treasury bills by submitting interest rates they would like to pay. The Central Bank then decides what bids it will accept and determines a cut-off. Investors who submitted interest rates above that cut-off do not receive Treasury bills from that auction.
• Investors who choose the Non-Competitive/Average Rate are guaranteed to receive Treasury bills from the auction. But their interest rate is a weighted average of the accepted bids from the investors who entered Interest/Competitive rates. While they are guaranteed to receive a bill, the maximum face value for Non-Competitive/Average Rate applications is KES. 20 million.

The final section on the application form is the Rollover Instructions. To easily facilitate re-investment, investors with maturing bills and bonds can use their returns to purchase additional government securities.

You must submit your application form to the Central Bank’s head office or one of its branches by 2 pm on Thursday for 364, 182, and 91-day bills.

4. Get the Auction Results

The Central Bank’s Auction Management Committee (AMC) meets at 4 pm on auction days, and after considering all received bids, determines the cut-off rate and the successful weighted average of the accepted bids. 

The results from the auction are published through Treasury Mobile Direct (TMD), Twitter, and in the statistics section on the CBK website. While investors will typically receive Treasury Bills in the amount they applied for, the Central Bank can issue bills for a lower amount.

Following the auction, investors need to call or visit the Central Bank or its branches to determine if their applications were successful and how much they owe for their Treasury bills. 

5. Payment

The payment period for an auction typically closes on the following Monday at 2 pm. 

Investors can submit their payments through cash or banker’s cheques for amounts under Ksh 1 million and through a KEPSS transfer for larger amounts. Successful applicants who fail to submit payments within the payment period can be barred from future investment in government securities.

6. Maturity Proceeds:

 At the end of the 91, 182 or 364-day period, the face value amount of the Bill will be remitted into the commercial bank account indicated on the CDS account. 

Alternatively, an investor may choose to roll over their securities into a new forthcoming issue. In this case, they have to complete the application form giving rollover instructions and submit it to Central Bank before closing the sale period for that Bill. 

The maturity date of the maturing security (investment) and the value date of the new Treasury Bill MUST match for rollover instruction to be successful. The bank, therefore, does not remit maturing proceeds into the investor’s bank account but instead sends only refund amounts generated from the new investment.

Final Note

Treasury Bills are among the most secure short-term investments with a good return. They are great investments for investors seeking to diversify their investment portfolio while earning short-term stable returns.

In the next part of the series, we will look at investing in Treasury Bonds.