A Beginner’s Guide to Treasury Bills in Kenya

What Is a Treasury Bill?

A Treasury bill, commonly called a T-bill, is a short-term loan to the Government of Kenya.

When you buy one:

• 1You select the amount you want the government to repay at maturity.
• 2You pay less than that amount at the beginning.
• 3You wait for the agreed period.
• 4The government pays you the full face value at maturity.
• 5The difference, after tax, is your return.

Treasury bills are paperless government securities issued through the Central Bank of Kenya. Kenya currently issues them for 91, 182 and 364 days, and all three tenors are ordinarily offered every week.

Simple Example

Suppose you apply for:

KES 100,000 face value

After the auction, your total settlement amount is calculated as:

KES 92,292

At maturity, the government pays:

KES 100,000

Your net return is approximately:

KES 7,708

You do not receive monthly or quarterly interest.

Your return is earned through the difference between:

• The amount paid at the beginning, and
• The face value received at maturity.

The Three Treasury-Bill Options

91-Day Treasury Bill

The 91-day bill lasts for approximately three months.

It may be suitable when:

• You want the shortest available Treasury-bill commitment.
• You expect to need your money relatively soon.
• You want to reinvest several times during the year.
• You believe interest rates may rise and do not want to lock into the current rate for long.

Its main disadvantage is that you must reinvest more frequently.

182-Day Treasury Bill

The 182-day bill lasts for approximately six months.

It provides a middle ground between:

• The greater flexibility of the 91-day bill, and
• The longer rate commitment of the 364-day bill.

It may suit an investor with a six-month financial goal or someone who wants to reduce the frequency of reinvestment.

364-Day Treasury Bill

The 364-day bill lasts for approximately one year.

It may be appropriate when:

• You can leave the money untouched for roughly 12 months.
• You want to lock in the auction rate for longer.
• You do not want to reinvest every three or six months.
• The 364-day rate adequately compensates you for the longer commitment.

Its main disadvantage is reduced flexibility. If you need the money early, your options are limited.

Quick Comparison

A longer bill is not automatically better. Compare the additional return with the additional time for which your funds will be committed.

How Treasury Bills Generate Returns

Treasury bills do not have coupons.

Instead, they are sold at a discount.

Face Value

The face value is the amount CBK will pay you at maturity.

Examples include:

• KES 50,000
• KES 100,000
• KES 500,000
• KES 1,000,000

When entering a Treasury-bill bid, the figure normally represents the face value required, not the exact cash amount you will pay.

Purchase Price

The purchase price is the discounted value of the bill before withholding tax is considered.

It is determined using:

• Face value
• Auction yield
• Number of days to maturity

A higher accepted yield generally results in a lower purchase price and a greater return.

Gross Interest

Gross interest is the difference between face value and the discounted price:

Gross interest = Face value − Discounted price

Withholding Tax

Treasury-bill interest generally attracts 15% withholding tax.

The tax is deducted from the interest rather than from the face value. CBK’s own published example uses a 15% withholding-tax rate for a 364-day Treasury bill.

Total Settlement Amount

The investor pays:

Discounted price + Withholding tax

This is equivalent to:

Face value − Net interest

At maturity, the investor receives the full face value.

Worked Treasury-Bill Example

Assume an investor applies for:

Step 1: Calculate the Discounted Price

CBK prices Treasury bills using a yield-based formula:

Price = Face value ÷ [1 + Yield × Days ÷ 365]

Using the example:

Price = KES 100,000 ÷ [1 + 10% × 364 ÷ 365]

The discounted price is approximately:

KES 90,931.74

Step 2: Calculate Gross Interest

Gross interest = Face value − Price

KES 100,000 − KES 90,931.74

Gross interest:

KES 9,068.26

Step 3: Calculate Withholding Tax

Tax = Gross interest × 15%

KES 9,068.26 × 15%

Tax:

KES 1,360.24

Step 4: Calculate the Settlement Amount

Settlement = Discounted price + Tax

KES 90,931.74 + KES 1,360.24

Total amount payable:

KES 92,291.98

Rounded:

Approximately KES 92,292

Step 5: Calculate the Net Return

At maturity, the investor receives:

KES 100,000

Net return:

KES 100,000 − KES 92,291.98

KES 7,708.02

CBK gives substantially the same result in its published example: approximately KES 92,292 is paid for KES 100,000 face value at a 10% yield over 364 days, after allowing for 15% withholding tax.

The Quoted Rate Is Annualised

A common mistake is assuming that a 9% Treasury-bill rate means you will earn 9% during a 91-day investment.

The quoted rate is an annualised rate.

A 91-day bill only runs for about one-quarter of a year. The actual return earned during those 91 days will therefore be much lower than the quoted annual rate.

As a simplified approximation:

When Should You Consider Treasury Bills?

Treasury bills may be useful when:

• You have money that will not be needed for three to twelve months.
• You want a known maturity date.
• You want direct exposure to a Government of Kenya security.
• You prefer a short-term product rather than a long bond.
• You are saving for a planned expense.
• You want to hold part of your portfolio in short-term fixed income.
• You expect to receive the full face value on a specific future date.
• You want to build a short-term maturity ladder.

Treasury Bills May Be Less Appropriate When

• The money is your emergency fund.
• You may need immediate withdrawals.
• You want monthly income.
• You want a product with a normal secondary market.
• You cannot meet the minimum face-value requirement.
• You are likely to need the money before maturity.
• You want long-term capital growth.
• You do not want to participate in regular auctions.

Treasury Bills Compared With Other Investments

A money market fund may invest in Treasury bills, but owning units in the fund is different from owning a Treasury bill directly.

With the fund:

• The fund manager handles investments.
• You may be able to withdraw more easily.
• Management fees apply.
• The return changes as the portfolio changes.

With a direct Treasury bill:

• You participate through CBK.
• You select the face value and tenor.
• You generally hold until a fixed maturity date.
• You receive the face value directly at maturity.

Are Treasury Bills Only Available in the Primary Market?

For the ordinary retail-investor journey, yes.

CBK states that Treasury bills are not traded in the secondary market. They are not bought and sold through the NSE in the same way as Treasury bonds. (Central Bank of Kenya)

However, there are two qualifications.

Transfers

CBK states that Treasury bills may be transferred to other parties.

A transfer is not the same as an open, liquid secondary-market sale. It may involve specific documentation, counterparties and CSD procedures.

Rediscounting

An investor who urgently needs money before maturity may request CBK to rediscount the bill.

Rediscounting means CBK buys the security back before maturity using a punitive rediscount rate.

It is intended as a last-resort facility, not a normal investment strategy. (Central Bank of Kenya)

How to Invest in Treasury Bills

Investing in a Treasury bill through the primary market follows nine steps, from opening a CSD account to confirming the bill in your portfolio. Each step is covered below.

Step 1: Open a DhowCSD Account

The CSD account records your government-security holdings.

Individuals can open an account through CBK’s DhowCSD portal or application. CBK requires information including identification, a KRA PIN or applicable exemption documentation, contact details, a photograph and an active account with a Kenyan commercial bank. (DhowCSD Portal)

Investors can also participate through a commercial bank or investment bank acting as custodian, but direct DhowCSD participation avoids the need for an intermediary. (Central Bank of Kenya)

Step 2: View the Weekly Treasury Bills on Offer

CBK ordinarily offers:

• One 91-day bill
• One 182-day bill
• One 364-day bill

each week. (Treasury Bills on Offer)

The weekly announcement normally provides:

• Issue number
• Tenor
• Auction date
• Value date
• Amount offered
• Previous auction rate
• Bid-closing deadline
• Results-announcement date
• Payment deadline
• Minimum bid
• Competitive and non-competitive terms

CBK’s current auction announcements state a KES 50,000 minimum for non-competitive bids, KES 2 million for competitive bids and a KES 50 million non-competitive maximum per investor account per tenor. These limits should always be read from the current announcement because they can change. (Central Bank of Kenya)

Step 3: Choose a Tenor

Ask:

• 1When will I need the money?
• 2Can I hold the bill until maturity?
• 3How do the three rates compare?
• 4Do I expect interest rates to rise or fall?
• 5How frequently am I willing to reinvest?
• 6Does the additional yield justify the longer commitment?

Do not select the 364-day bill merely because it has the highest displayed rate. The extra return may be very small compared with the loss of flexibility.

Step 4: Decide Your Face Value

The amount entered in the bid is ordinarily the amount you want to receive at maturity.

For example:

Face value requested: KES 500,000

The amount paid after the auction will be below KES 500,000 because the bill is purchased at a discount, although withholding tax increases the settlement amount above the pure discounted price.

Current CBK guidance states that bids must be in denominations of KES 50,000. (Central Bank of Kenya)

Examples of valid face values include:

• KES 50,000
• KES 100,000
• KES 150,000
• KES 500,000
• KES 1,000,000

Step 5: Choose Competitive or Non-Competitive Bidding

Non-Competitive Bid

You enter:

• The tenor
• The required face value

You do not enter your own yield.

You accept the weighted-average rate determined from accepted competitive bids at the auction. (Central Bank of Kenya)

This is usually the simpler choice for a beginner.

Advantages

• No need to select a market yield.
• Lower minimum than competitive bidding.
• Simpler bidding decision.
• Reduced risk of entering an unrealistic rate.

Limitations

• The final rate is unknown when the bid is submitted.
• The amount payable is only confirmed after the auction.
• You must accept the weighted-average auction result.

Competitive Bid

You enter:

• The tenor
• The required face value
• The annual yield you want

Competitive bidding is more appropriate for investors who understand:

• Current Treasury-bill rates
• Market liquidity
• Expected auction demand
• Pricing relationships
• The probability of bid rejection

Possible outcomes

• Accepted in full
• Accepted partially
• Rejected

A bid seeking a yield above CBK’s cut-off may be rejected.

Current weekly announcements place the competitive minimum at KES 2 million face value. (Central Bank of Kenya)

Competitive Versus Non-Competitive

Step 6: Submit the Bid

Through DhowCSD:

• 1Log in.
• 2Open the Auctions menu.
• 3Select the Treasury-bill issue.
• 4Confirm whether it is the 91-, 182- or 364-day bill.
• 5Select competitive or non-competitive.
• 6Enter the face value.
• 7Enter the required yield for a competitive bid.
• 8Check the maturity and value dates.
• 9Review the bid.
• 10Submit before the deadline.
• 11Save the confirmation.

CBK’s investor guidance directs users to the Auctions menu in DhowCSD to view and bid for available securities. (Central Bank of Kenya)

Step 7: Check the Auction Results

After the auction, check:

• Whether the bid succeeded
• Face value allocated
• Accepted rate
• Discounted price
• Withholding tax
• Total amount payable
• Payment key
• Settlement deadline

CBK can accept or reject bids in part or in full, and common competitive bids at the cut-off may be allocated proportionately. (Central Bank of Kenya)

Step 8: Pay the Settlement Amount

Do not pay the full face value.

Pay the exact settlement amount shown in DhowCSD.

The payment reference should ordinarily contain:

• CSD account number
• Amount payable
• Payment key

Current auction announcements require settlement through electronic transfer using RTGS by the stated deadline. The exact payment channel and deadline should be confirmed from the current auction announcement and the DhowCSD transaction instructions. (Central Bank of Kenya)

Step 9: Confirm the Bill in Your Portfolio

After settlement, check:

• Issue number
• Face value
• Value date
• Maturity date
• Amount paid
• Accepted yield
• Tax deducted
• Bank account for maturity payment

Save:

• Bid confirmation
• Auction result
• Payment confirmation
• CSD statement
• Maturity date

A Typical Weekly Auction Cycle

The exact dates can change because of public holidays or special announcements, but a normal weekly cycle may resemble:

What Happens at Maturity?

On the maturity date:

• 1The Treasury bill expires.
• 2CBK pays the face value.
• 3The money is sent through the registered settlement arrangement.
• 4The investment is removed from the active CSD portfolio.

A KES 500,000 Treasury bill ordinarily returns:

KES 500,000 at maturity

The investor’s profit has already been built into the difference between the initial settlement amount and the maturity value.

Reinvesting or Rolling Over

A Treasury bill does not automatically continue forever.

At maturity, an investor can:

• Receive the money
• Submit a new bid
• Move into another tenor
• Move into a Treasury bond
• Move into an MMF or fixed deposit
• Use the money for the intended expense

The new Treasury bill will be priced using the rate available at the new auction.

The old rate is not guaranteed.

Building a Treasury-Bill Ladder

A Treasury-bill ladder spreads maturity dates instead of placing all the money into one bill.

Example

An investor has KES 600,000.

They allocate:

• KES 200,000 to a 91-day bill
• KES 200,000 to a 182-day bill
• KES 200,000 to a 364-day bill

This creates different maturity dates.

Potential benefits include:

• Earlier access to part of the capital
• Reduced dependence on one auction rate
• Opportunities to reinvest at different future rates
• Better matching of investments to planned expenses

A ladder does not eliminate interest-rate, inflation or sovereign risk.

Early Exit

Normal Secondary-Market Sale

Treasury bills are not normally traded through the Kenyan secondary market in the way Treasury bonds are. (Central Bank of Kenya)

Transfer

A bill may be transferred to another party using the applicable CBK and CSD procedures.

A transfer should not be presented as guaranteed liquidity.

Rediscounting

Rediscounting allows CBK to buy the bill before maturity.

It is a last-resort facility and uses a punitive rate intended to discourage early withdrawal. (Central Bank of Kenya)

The investor may receive substantially less than expected.

The practical rule is:

Do not invest in a Treasury bill unless you are reasonably confident you can hold it to maturity.

Taxation

Treasury-bill interest generally attracts 15% withholding tax.

The tax is applied to the gross discount earned:

Tax = Gross interest × 15%

For a resident individual, qualifying interest subject to withholding tax is generally treated as final tax. (Kenya Revenue Authority)

Different treatment may apply to:

• Companies
• Trusts
• Pension arrangements
• Non-residents
• Tax-exempt investors

The calculator should therefore allow:

• 15% standard rate
• Exempt investor
• Custom tax rate where legally applicable

Main Risks

Liquidity Risk

There is no normal retail secondary-market route comparable to Treasury bonds.

Reinvestment Risk

When a bill matures, future auction rates may be lower.

Inflation Risk

Inflation may reduce the purchasing power of the return.

Sovereign Risk

The investment is an obligation of the Government of Kenya. Government backing does not mean risk is literally zero.

Opportunity-Cost Risk

Money committed to a bill cannot easily be redirected into a more attractive investment before maturity.

Rate Risk

After investing, new Treasury bills may be issued at higher rates.

You will continue earning the rate attached to your existing bill until maturity.

Tax Risk

Tax legislation or investor treatment may change.

Operational Risk

Entering the wrong:

• Tenor
• Face value
• Yield
• CSD account
• Payment key
• Settlement amount

can result in failed or unintended transactions.

Common Beginner Mistakes

• Thinking the quoted rate is earned over 91 days rather than annualised.
• Entering the cash available instead of the required face value.
• Assuming KES 500,000 face value requires a KES 500,000 payment.
• Forgetting that withholding tax reduces the return.
• Comparing rates without comparing tenors.
• Selecting a 364-day bill using emergency money.
• Assuming Treasury bills pay monthly interest.
• Missing the settlement deadline.
• Entering an unrealistic competitive yield.
• Assuming the bill can easily be sold before maturity.
• Failing to record the maturity date.
• Automatically reinvesting without comparing new market rates.

Beginner’s Checklist

Before bidding, confirm:

• I have an active DhowCSD account.
• I have money outside the investment for emergencies.
• I know whether I selected 91, 182 or 364 days.
• I can hold the bill until maturity.
• I know the face value I am requesting.
• My bid follows the required KES 50,000 denominations.
• I understand competitive versus non-competitive bidding.
• I understand that the quoted rate is annualised.
• I have estimated the settlement amount.
• I have included withholding tax.
• I know the bid-closing deadline.
• I know the payment deadline.
• I will use the payment key shown in DhowCSD.
• I have recorded the maturity date.
• I understand that there is no normal retail secondary market.
• I have decided whether to receive or reinvest the maturity proceeds.

Frequently Asked Questions

Do Treasury bills pay interest every month?

No. They do not pay coupons. The return is realised through the discount between the amount paid and the face value received at maturity.

Can I buy a Treasury bill through the NSE?

Not through the normal secondary-market process used for Treasury bonds.

Can I withdraw before maturity?

There is no ordinary withdrawal feature. Transfer or CBK rediscounting may be possible, but rediscounting is a last-resort facility.

Is the minimum amount the cash I pay?

No. It refers to the minimum face value. The settlement amount is normally lower than the face value.

Which Treasury bill offers the highest return?

This changes weekly. A higher annual rate does not automatically make a longer tenor preferable.

Can I submit bids for all three tenors?

Yes, provided each bid meets the applicable auction requirements and you can settle every successful allocation.

What happens if my competitive bid is rejected?

You receive no allocation and make no payment for that unsuccessful bid.

What happens if my non-competitive bid succeeds?

You receive the applicable allocation at the weighted-average accepted auction rate.

Are Treasury bills tax-free?

No. Treasury-bill interest generally attracts withholding tax.

Do I receive a certificate?

The holding is recorded electronically in the CSD rather than through a physical certificate.

Can I use an MMF instead?

An MMF may offer easier access, but it is a pooled fund with changing returns, fees and a portfolio selected by a fund manager. A direct Treasury bill has a defined face value and maturity date.