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Youth rewriting wealth creation script with bonds
With Treasury bills and bonds offering attractive and predictable returns, young investors are increasingly drawn to these instruments as a means of wealth creation and financial security.
When Daniel Mugo made his first Sh50,000 investment in a government bond, he wasn’t exactly sure how it worked.
The 34-year-old IT specialist had overheard senior colleagues at his firm discuss Treasury bonds in hushed tones over lunch. They spoke about interest rates, yield curves, and coupon payments—terms that felt intimidating at first.
However, what struck him most was their confidence. These were not the high-risk, high-reward stock traders or cryptocurrency evangelists he was used to.
These were professionals playing the long game, building wealth without the dramatic highs and lows of the stock market.
Today, Mugo holds bonds worth Sh3 million. “I realised bonds are not as glamorous as stocks, but the money is stable, and that’s the kind of wealth I want—silent but solid,” he says.
He is part of a new breed of young investors who are rewriting the script of wealth creation.
Bonds, long perceived as the domain of pension funds, government institutions, and the ultra-wealthy, are now attracting young Kenyans from different walks of life—corporate executives, civil servants, entrepreneurs, freelancers, and even university students.
Just two years ago, opening a Central Depository System (CDS) account to invest in government securities was a daunting task.
Prospective investors had to physically visit the Central Bank of Kenya (CBK) headquarters or branch offices—a process that discouraged many.
Fast forward to today, and the game has changed. The introduction of DhowCSD, a web-based and mobile application by CBK, has made investing in Treasury bills and bonds as simple as a few swipes and taps on a phone.
Daniel Mugo, says his first Sh50,000 investment was in a government bond.
Photo credit: Pool
This innovation has transformed access to government securities, leading to a surge in young investors eager to explore fixed-income opportunities.
The impact has been profound. The number of CDS accounts has more than doubled, rising from 41,125 in July 2023 to 92,677 by September 6, 2024, marking an impressive 225 percent growth.
A significant portion of these new accounts belongs to retail investors, particularly young individuals who are leveraging digital access to secure better returns than traditional savings accounts offer.
This shift is shaking up commercial banks, as depositors withdraw funds to invest directly in government securities, bypassing intermediary institutions.
Data from CBK further highlights this trend—of the total investors in government securities, households and individuals dominate at 73,586, significantly outpacing banks, private companies, and money market funds.
With Treasury bills and bonds offering attractive and predictable returns, young investors are increasingly drawn to these instruments as a means of wealth creation and financial security.
As DhowCSD continues to simplify investment access, Kenya’s bond market is witnessing a demographic shift—one where tech-savvy youth are redefining how government securities are traded.
For many young investors, the journey into bonds started with curiosity. Some, like Daniel, stumbled upon conversations in their workplaces. Others, like 27-year-old Abigail Muli, a Nairobi-based tech entrepreneur, were introduced through social media.
“I saw a thread on X breaking down how government bonds work,” Abigail recalls. “It explained how you can start with as little as Sh50,000 and earn risk-free interest from the government. I had just made some money from an app I developed, so I decided to give it a try.”
Her first experience was daunting. The process of opening a Central Depository System (CDS) account with the Central Bank was tedious.
Then came the challenge of understanding bond auctions, yields, and maturities.
“But once I got my first interest payment, I was hooked,” she says with a laugh.
While bonds are traditionally considered safer than stocks, they are not without risks. Fluctuations in interest rates affect bond prices, meaning those who buy bonds in the secondary market (instead of directly from the government) can make losses if they sell before maturity.
For Easter Fanning Abongo, the journey into bond investing began not in a classroom but through countless hours of self-education.
“I spent hours on YouTube, watching business news segments, both local and international. I also remember buying several newspapers during that season of knowledge gathering,” he recalls. “I had my eyes and ears everywhere I imagined government papers and financial performance would be announced.”
His first step into the bond market came in 2018 while he was in his first year of university. The Kenyan government had just introduced M-Akiba, a mobile-based platform that allowed Kenyans to invest in government bonds with as little as Sh3,000, a significant shift from the usual Sh50,000 minimum for Treasury Bills and Sh100,000 for Treasury Bonds.
“With the experience and confidence gained from this initial investment, I later made follow-on investments during the Covid-19 pandemic,” he says.
“I had some savings from part-time work, and this time, I made more significant investments through a digital investment app called Abacus.”
Easter Fanning, who says he says he started his journey into bond investing in 2018.
Photo credit: Pool
His motivation for investing in bonds was twofold: first, to understand how different investment options in Kenya worked, and later, to secure a decent return on investment while managing risk. “I’m quite risk-averse, so bonds made sense for me,” he explains.
However, he acknowledges that for young investors, bonds may not always be the most attractive option. “There are now many emerging investment alternatives that are highly accessible through digitisation,” he says.
“Bonds once had a fighting chance when M-Akiba made them easy to invest in, but sadly, that innovation died off.” Instead, he suggests that young investors consider money market funds, which allocate part of their portfolios to bonds, allowing for indirect investment.
Comparing bonds to stocks and real estate, he notes that stocks are becoming more accessible through digital brokerage platforms, while real estate, once out of reach for many young investors, now has options like Real Estate Investment Trusts (REITs).
“You can buy ‘shares’ in major projects and reap returns upon completion,” he explains, pointing to Kenya’s ACORN Group and its Qwetu Student Hostels as an example.
Despite challenges like the illiquidity of Kenya’s secondary bond market, he has found success.
“My biggest win was achieving an 18 percent return in just nine months,” he says. His advice to young investors?
“First, understand your risk appetite. Then, explore options that align with your financial goals.”
James Karanja, a 30-year-old banker, learned this the hard way.
“I bought a corporate bond that promised a 12 percent return. Then the issuing company ran into financial trouble, and suddenly, no one wanted to buy my bond in the market. I had to hold onto it, even as its value kept dropping.”
James now sticks to government bonds. “The risk is lower, and the returns are guaranteed,” he says.
But some investors thrive on the thrill of high-risk bonds. Kelvin Otieno, a 29-year-old procurement officer, juggles a portfolio that includes government and corporate bonds.
“I don’t mind a bit of risk,” he says. “I diversify. If a company’s bond offers 14 percent interest but comes with some uncertainty, I balance it with a stable government bond at 11 percent.”
The biggest hurdle for young bond investors is knowledge. Unlike stocks, where brokerage firms offer guidance, bonds require a level of self-education.
Kelvin also started a Telegram group where young investors discuss bonds and share tips. “I realised that most people want to invest, but they get stuck on technical jargon. My goal was to simplify everything,” she says.
Through such networks, many young investors have learned about laddering—spreading investments across different bonds with varying maturities to maintain liquidity while earning returns. Others have discovered that timing is everything; interest rates fluctuate, affecting bond attractiveness.
“I made my best investment in 2020 when rates were low. Now, with higher rates, I’m earning much more on new investments,” says Kelvin, the procurement officer.
For those expecting instant gratification, bonds can feel slow. Unlike stocks, where you can see daily price movements, bonds require patience.
“It took me about a year to really see the value,” Abigail admits. “The first few months, you barely feel the impact of your investment. But once the interest payments start rolling in consistently, you appreciate the long game.”
Kenya’s infrastructure bonds are proving to be a lucrative investment as well, offering tax-free earnings, high returns, and funding for critical national projects.
According to Zurit Consulting, a business consultancy and advisory firm, these bonds allow investors to save up to Sh25.8 billion annually in tax-free interest while yielding returns of over 14 percent.
With 24 bonds currently trading at a total value of Sh1.8 trillion, infrastructure bonds account for 37 percent of the local bond market.
Their proceeds fund essential projects such as roads and energy, reducing reliance on expensive foreign debt and strengthening the economy.
However, despite their benefits, challenges remain. The government loses significant tax revenue, and retail investors often face high entry barriers, limiting their participation.
Zurit Consulting emphasises that balancing accessibility, transparency and tax policy is crucial to maximising their impact.
To enhance their effectiveness, experts recommend keeping these bonds tax-free to attract more investors, lowering entry requirements to encourage broader participation, and educating the public on their benefits.
Transparency in fund allocation is also key to ensuring investments are channelled into priority projects. Some analysts propose a partial taxation model, targeting only high-value bond holdings to balance inclusivity and revenue collection.
As Kenya seeks sustainable economic growth, infrastructure bonds remain a vital tool in financing development while offering investors competitive returns. Strategic policy adjustments could further enhance their role in driving national progress.
For some, bonds are a means to an end. Sammy Mwendwa, an unemployed graduate, took out a bank loan to buy a bond.
“The bank was charging me nine per cent interest, but my bond was giving me 11 percent. I used the interest payments to clear my loan and kept the principal intact,” he says.
It’s an uncommon approach, but it worked. Today, Mwendwa is a financial consultant, advising others on how to use bonds strategically.
The surge of interest in bonds among young investors is not accidental. Several factors have made bonds more attractive, including them economic uncertainty since bonds offer stability, accessible information where social media and investment groups have demystified bonds, digital convenience since the Central Bank now allows investors to manage bonds digitally, making transactions easier and lastly attractive returns. With current interest rates on bonds hitting double digits, they outshine traditional savings accounts.
While stocks and real estate still dominate investment conversations in Kenya, the quiet revolution of young bond investors is reshaping how wealth is built. These investors aren’t looking for quick wins. They are playing the long game, earning passive income, and securing financial freedom one bond at a time.
Daniel Mugo, the IT expert, puts it best: “We grew up hearing that wealth is about big risks and big rewards. But now, we are realising that the real flex is silent, consistent money. That’s what bonds give you.”
As more young Kenyans realise this, bonds may no longer be the preserve of pensioners and institutional investors. The future of wealth may well be in the hands of those willing to invest patiently and wisely.
According to Churchill Ogutu, an economist at IC Asset Managers (Mauritius), more young Kenyans are showing interest in bond investing, a shift from the past when such investments were often associated with retirement planning. He attributes this to the growing accessibility of bond platforms and an increase in financial awareness.
“More and more young people are starting to take up bond investing,” Ogutu notes, adding that financial literacy programs have played a significant role in shaping investment decisions among the younger generation.
“There’s a lot more financial awareness today, with tonnes of financial literacy programmes running.”
For young Kenyans looking to build wealth, Ogutu sees bonds as a useful tool. “There’s the discipline in investing, and also the compounding effect. Investors can build their wealth faster by reinvesting their coupon payments.” This long-term approach, he explains, helps young investors establish financial stability early in life.
When it comes to portfolio diversification, Ogutu believes in the 60/40 investment principle—where 60 percent is allocated to stocks and 40 percent to bonds, depending on an individual’s risk appetite.
“The discipline of investing, however small, cannot be gainsaid,” he says. “The 60/40 principle is an avenue to diversify one’s investment, and depending on an individual’s risk appetite, it can be implemented.”
On managing investment risks, Ogutu advises a calculated approach.
“Risk appetite boils down to the individual, and there is no one-size-fits-all way around it. Investors need to balance factors like investment horizon, liquidity concerns, tax considerations, and their ability and capacity to take on risk.”
As for cryptocurrency, Ogutu acknowledges its growing traction as an asset class but warns against speculation. “More and more investors are adding it to their portfolio,” he says.
“That said, investors should be wary of speculative behaviour and instead look at crypto as a long-term investment. It’s important to understand the factors driving its widespread acceptance and monitor developments closely.”
