Plain English

A loan you make to the government. You hand over money now, they pay you interest along the way, and they give your money back on an agreed date.

You are the lender here, not the borrower. Everything else follows from that.

Precisely: A tradeable debt security issued by the National Treasury through the Central Bank of Kenya, carrying a fixed or indexed coupon and a stated maturity.

The interest the government pays you, usually twice a year. A 13% coupon on KES 100,000 pays KES 13,000 a year — KES 6,500 every six months.

The coupon is fixed for the life of the bond. It never changes, whatever happens to rates later.

Precisely: The annual interest rate stated on the bond, paid in instalments at the coupon frequency (twice yearly for most Kenyan issues).

The amount the government promises to give back at the end. Prices are quoted per KES 100 of face value, so a price of 98 means you pay 98 to be repaid 100 later.

This is why a bond bought below 100 earns you more than its coupon suggests.

The date the government repays your money in full and the bond ends.

Your money is committed until then — unless you sell to someone else first.

How long the loan runs. A 10-year bond has a 10-year tenor. Kenya issues everything from 91 days to 30 years.

Longer usually pays more, because you are waiting longer and taking more risk.

Your actual annual return if you hold the bond to the end — counting the interest you receive AND any gain or loss from the price you paid.

The coupon tells you what the bond pays. The yield tells you what YOU earn. They are only the same if you paid exactly 100.

Precisely: The discount rate that makes the present value of all remaining cash flows equal to the price paid, including accrued interest.

Your yield after withholding tax has been taken off. This is the number that actually reaches your bank account.

Almost everywhere else quotes gross yield. A 15% gross yield on a short bond is 12.75% in your hand.

Tax deducted from your interest before you receive it. In Kenya: 10% on bonds of 10 years or longer, 15% on shorter ones, and 0% on infrastructure bonds.

Tenor changes your tax rate, so a longer bond can beat a shorter one twice over.

Precisely: A final tax on interest income under the Income Tax Act, deducted at source by the paying agent. Applied to coupon interest only — the return of your principal is not taxed.

A government bond that funds infrastructure projects and pays interest completely free of withholding tax.

A 12% tax-free IFB beats a 13.5% taxable bond. Comparing headline rates alone gets this backwards.

A picture of what the government pays for loans of different lengths — 2 years, 5 years, 10, 20 — drawn as a line from short to long.

When the line slopes up, longer loans pay more and you are rewarded for waiting. When it is flat, a 20-year bond pays little more than a 5-year one — so why lock your money away? The shape is the market telling you where the value is.

Precisely: The relationship between yield to maturity and time to maturity across a set of comparable securities.

The interest rate the Central Bank sets to steer the whole economy. Every other rate in Kenya — bonds, bank loans, savings — is priced with one eye on it.

When the CBR falls, new bonds tend to pay less. That is why the direction it is moving matters as much as the level.

The clean price is the quoted price. The dirty price is what you actually pay — clean price plus the interest that has built up since the last coupon date.

You are compensating the seller for interest they earned but have not yet been paid. Budget for it: it is real money on settlement day.

Interest that has quietly built up day by day since the last coupon payment, but has not been paid out yet.

Precisely: Calculated on an Actual/365 day-count basis for Kenyan government securities.

How Treasury bills are quoted. You buy below KES 100 and are repaid KES 100 — the gap is your interest. A "9% discount rate" is not a 9% return.

Your true annual return is always higher than the quoted discount rate, and the gap widens the longer the bill runs. Our T-bills page does the conversion.

A short government loan of 91, 182 or 364 days. No coupons — you simply pay less than KES 100 today and receive KES 100 at the end.

The natural home for money you will need soon but do not want sitting idle.

Spreading your money across bonds that mature in different years, so something matures regularly instead of everything at once.

You are never forced to sell at a bad moment, and you keep reinvesting at whatever rates arrive.

How new bonds are first sold. CBK announces an offer, investors bid, and the accepted bids set the rate. You can bid from KES 50,000.

Where bonds are bought and sold between investors after issue, on the Nairobi Securities Exchange. This is how you exit before maturity.

Prices here move with rates, so selling early can gain or lose you money. Holding to maturity avoids the question entirely.

The Central Bank's online system where you open a securities account, place bids and hold your bonds. It replaced the old CDS branch process.

What your money earns after prices have risen. Earning 13% while inflation runs at 6% means you are about 7% better off in what your money can actually buy.

A high rate in a high-inflation year can leave you standing still. This is the number that decides whether you are genuinely getting ahead.