Bond Basics & Glossary

What is a bond?

A bond is a loan you make to a borrower — in this case, the Government of Kenya. In return, the government promises to:

1. Pay you a fixed interest rate (coupon) every six months
2. Return your original money (the face value / principal) on the maturity date

Kenya Treasury Bonds (KTBs) are issued by the Central Bank of Kenya (CBK) on behalf of the National Treasury. They are considered the safest investment in Kenya — backed by the full faith of the Kenyan government — and they pay higher interest than bank savings accounts.

Types of bonds in Kenya

Fixed Rate (FXD)

The most common type. The coupon rate is fixed when the bond is issued and never changes for the life of the bond. FXD bonds are ideal for investors who want predictable income. Tenors range from 2 years to 30 years.

• Withholding tax: 15% on coupon income
• Minimum bid: KES 50,000
• Example: FXD1/2024/010 — 10-year bond at 16.00%

Infrastructure Bond (IFB)

Infrastructure bonds fund specific government development projects (roads, hospitals, energy). They are tax-exempt — you pay zero withholding tax on coupon income. This makes their effective after-tax yield significantly higher than an equivalent FXD bond.

• Withholding tax: 0% (tax-exempt)
• Minimum bid: KES 100,000
• Example: IFB1/2024/014 — 14-year infrastructure bond at 18.45%

Savings Development Bond (SDB)

Targeted at retail investors who want to save with the government over shorter periods (typically 1–3 years). Available exclusively to Kenyan citizens and only purchasable through licensed banks.

Treasury Bills (T-Bills)

Short-term government debt (91 days, 182 days, 364 days). Unlike bonds, T-bills are sold at a discount — you buy at below face value and receive the full face value at maturity. There are no coupon payments. KTB Intelligence focuses on bonds (not T-bills).

Glossary of common bond terms

Core terms

Term	Definition
Face Value (Par Value)	The original principal amount of the bond — what you get back at maturity. Kenya Treasury Bonds are issued in multiples of KES 50,000 (FXD) or KES 100,000 (IFB). Also called nominal value or par value.
Coupon Rate	The annual interest rate stated on the bond, expressed as a percentage of face value. Kenya Treasury Bonds pay semi-annually, so you receive half the annual coupon every 6 months. Coupon payment = Face Value × Coupon Rate ÷ 2
Maturity Date	The date on which the bond expires and the government repays the full face value. After maturity, no more coupon payments are made.
Tenor	The total lifespan of the bond from issue to maturity. Expressed in years. Common Kenya tenors: 2, 5, 10, 15, 20, 25, 30 years.
Settlement Date	The date on which money is exchanged — when you actually pay for the bond and it becomes yours. In Kenya, settlement is typically T+2 (two business days after the auction date).
Issue Number	The unique identifier of a Kenya Treasury Bond. Format: TYPE/YearOfIssue/Tenor. Example: FXD1/2024/010 = Fixed Rate bond, first issue in 2024, 10-year tenor.
ISIN	International Securities Identification Number — a 12-character global code that uniquely identifies the bond on any exchange worldwide. Kenya bonds use the prefix KE. Example: KE0000000928.

Pricing terms

Term	Definition
Clean Price	The quoted price of a bond excluding any accrued interest. This is the price you see in market quotations and on the NSE. It is expressed as a percentage of face value. Clean Price = 95.50 → you pay KES 95,500 for a KES 100,000 bond
Dirty Price (Full Price)	The actual total price you pay when purchasing a bond on the secondary market. It is the clean price plus accrued interest. Dirty Price = Clean Price + Accrued Interest The dirty price is what actually leaves your bank account. The difference between clean and dirty price matters most for bonds that have accumulated significant interest since the last coupon date.
Accrued Interest	Interest that has built up since the last coupon payment but hasn't been paid yet. When you buy a bond mid-period, you compensate the seller for the interest they earned while holding the bond. Accrued Interest = Face Value × Coupon Rate × (Days since last coupon ÷ 365) On the next coupon date, you receive the full coupon — effectively getting back the accrued interest you paid.
Par / At Par	A bond trading at exactly face value — a clean price of 100.00. If the market yield equals the coupon rate, the bond trades at par.
At a Discount	A bond trading below face value (clean price < 100). This happens when market interest rates rise above the bond's coupon rate — investors demand a lower price to make the yield competitive.
At a Premium	A bond trading above face value (clean price > 100). This happens when market interest rates fall below the bond's coupon rate — the above-market coupon makes the bond worth more than par.

Yield terms

Term	Definition
Yield to Maturity (YTM)	The total annualised return you earn if you buy the bond today at the current price and hold it until maturity, reinvesting all coupons at the same rate. It is the most important single number when comparing bonds. Key rule: When a bond's price rises, its YTM falls — and vice versa. Price and yield always move in opposite directions.
Coupon Rate vs YTM	The coupon rate is fixed and printed on the bond. The YTM changes daily with market prices. If you buy at a discount, YTM > coupon rate. If you buy at a premium, YTM < coupon rate.
Current Yield	A simplified yield measure: annual coupon income divided by the current market price. Current Yield = Annual Coupon ÷ Market Price × 100
Cut-Off Yield	The maximum yield the CBK accepts at a bond auction. All competitive bids above the cut-off yield are rejected. Non-competitive bidders always receive the cut-off yield.

Auction & market terms

Term	Definition
Primary Market	The original sale of bonds directly by the government via CBK auction. You bid to buy bonds that have never been owned by anyone else. Prices are determined by the auction process.
Secondary Market	Trading of bonds between investors after the initial issue. In Kenya, this happens on the Nairobi Securities Exchange (NSE). Prices fluctuate based on supply, demand, and prevailing interest rates.
Competitive Bid	You specify both the amount you want and the yield you're willing to accept. If your yield is at or below the cut-off, your bid is filled at your specified yield. Minimum competitive bid in Kenya: KES 50,000.
Non-Competitive Bid	You specify only the amount — you accept whatever yield the CBK sets as the cut-off. Guaranteed allocation (subject to the non-competitive limit per investor). Maximum: KES 20,000,000 per auction.
Re-opening	The government re-issues an existing bond (same ISIN, same coupon, same maturity) to raise additional funds. Re-opened bonds have a shorter remaining tenor than the original but carry the same coupon rate.
Cover Ratio	Total bids received divided by the amount offered. A cover ratio of 2× means investors bid for twice the available amount — indicating strong demand.
Period of Sale	The window during which CBK accepts bids for a bond auction. Typically runs for about two weeks before the auction date.
CDS Account	Central Depository System account — the official electronic record at CBK that holds your Kenya government bond ownership. Required for all bond investments. See the Kenya Buying Guide →

Risk & tax terms

Term	Definition
Withholding Tax	Tax deducted at source on coupon income before it reaches you. FXD bonds carry 15% withholding tax. IFB (infrastructure) bonds are tax-exempt (0%). The effective after-tax yield is what matters for comparison.
Duration	A measure of a bond's interest-rate sensitivity. Higher duration = price moves more when rates change. A 10-year bond with a duration of 7 years will drop approximately 7% in price if interest rates rise by 1%.
Default Risk	The risk that the borrower cannot repay. Kenya Treasury Bonds have essentially zero default risk — the government can always print money (or tax citizens) to service domestic debt denominated in Kenyan Shillings.
Reinvestment Risk	The risk that coupon payments received during the bond's life will have to be reinvested at a lower rate. Most relevant for long-term bonds in a falling interest-rate environment.
Liquidity Risk	The risk of not being able to sell a bond quickly at a fair price. Some Kenya bonds have thin secondary market trading — you may need to hold to maturity.

Quick reference: clean vs dirty price example

Next steps

Now that you understand the terminology, learn how to actually buy bonds in Kenya:

• Kenya Buying Guide → — Set up your CDS account and place your first bid
• Primary Market Calculator → — Calculate your expected returns before bidding
• Secondary Market Calculator → — Price bonds including dirty price and accrued interest