Treasury Bill is a paperless short-term borrowing instrument issued by the Government through the Central Bank of Kenya to raise money for a period of up to one year. Treasury bills are issued in maturities of 91 and 182 days.
In 2009-2010, a 364 days paper was introduced. Treasury bills are sold at a discounted price to reﬂect investor’s return and redeemed at face (par) value.
Individuals and corporate bodies who hold an account with a local commercial bank can invest in the bills.
Those who do not have accounts with local commercial banks but invest as nominees of commercial or investment banks also qualify. So do individuals and companies with CDS accounts with the Central Bank.
An investor must have at least Sh100,000 ($1,176.5) and any additional amounts must be in multiples of Sh50,000 ($588.3) to invest in the securities. Treasury bills are sold weekly, with 91 days and 182 days papers issued in alternate weeks. Each new offer is advertised in the newspapers on Fridays and is available online. Completed application forms must be submitted to Central Bank or its branches on or before 2pm on Thursdays.
Treasury bills are sold at a discounted price (less than par price of Sh100 ($1.25) and the discount is the only return an investor earns. The price is computed per Sh10O depending on the interest rate / yield quoted by the investor.
The Central Bank remits the face value of maturing bills to the investor’s commercial bank account on due date electronically. The investor’s CDS account is debited by the same value of the security and statements are sent showing the new position. Investors may choose to rollover their security into a new issue and have to complete application forms giving rollover instructions.
The average interest rate on the 91-day Treasury bills fell from 6.82 per cent in December 2009 to 2.28 per cent in December 2010, but shot to double digits in 2011 after the Central Bank raised rates to control inﬂation and stabilize the shilling.