Retail investors savour sweet fruits of Treasury bonds

Odhiambo Ocholla

The Government's effort to entice retail investors to participate in the Treasury bond market is bearing fruit faster than anticipated.

Traditionally the preserve of commercial banks, fund managers, insurance companies, pension funds, parastatal and high-net worth clients, the Treasury bond market has started attracting retail investors too thus giving the Government opportunity to diversify its funding base.

Data from the Debt and Money Markets Review published by the Central Bank of Kenya (CBK) shows that in the third and fourth quarter of last year, individuals or retail investors increased investment in government debt to Sh20.3 billion from Sh11.22 billion.

This is a significant jump indicating retail investor’s appetite and knowledge of others attractive investment opportunities besides the traditional known investment avenues like banks deposits, real estates, and shares at the Nairobi Securities Exchange. These are really encouraging statistics.

Attractive investment

Increased appetite for Treasury bills, bonds by retails investors is commendable. Retail investors should note that it’s attractive to invest in Treasury bills and bond.

Currently, the 91-day Treasury bill is offering interest as high as 18 per cent while the average deposit rate with commercial banks is 7.66 per cent.

Investment in Treasury bonds allows retail investors to take control of their own savings portfolio. These bonds provide a safe, secure and risk free investment opportunity for ordinary Kenyans. The need for retail investor’s participation in the government securities should not be overstated.

Financial markets playground has for a number of years only been open to big investors with lots of cash to invest.

To invest in the Treasury bond, an investor needed a minimum of Sh 50,000 to be able. This has meant that only the high income earners are able to invest in Treasury bonds and bills.

In order to attract a wider net of retail investors, the Government should consider introducing issues for retail segments at a minimum denominations as low as Sh1,000 as oppose to the current Sh50,000 which is out of reach for the common man in the street.

With those minimum denominations, ordinary citizens can afford to spread their investments to include bonds and get returns that they will not necessarily get in the banking sector. These bonds should assist to improve Kenyans household’s low savings rate.

Savings gap

Traditionally, most people used contractual savings like provident fund, pension funds, endowment policies and life assurance as methods of saving. Although these products have played and are still playing an important role in encouraging people to save and invest for the future, a gap still exists in their savings portfolio as most of these products are mostly long term like pension fund and annuities.

Households need to start developing a saving culture that can cater for all needs: short-term, medium term and long term needs and this where investment in Treasury bills and bonds comes in.

In fact, ordinary citizens would be able to enjoy benefits that have long been enjoyed by big investors. Accessibility of bond market by retail investors promotes a saving culture among Kenyans. Individuals have access to those benefits in the same way as businesses and corporates.

Retail investors participation in the bond market stimulates personal economic empowerment by providing an alternative investment instrument that is safe and secure while delivering solid and dependable returns as well as creating healthy competition between the investment instruments in the marketplace, to the ultimate benefit of the individual investor.

Mr. Odhiambo Ocholla is an Investment Banker. Email: [email protected]