Living Off Monthly Coupon Income

A Kenya Bond Guide

Infrastructure Bonds, Treasury Bonds & Building a Monthly Income Portfolio

A Simple Guide for Everyone

What Is a Bond?

A bond is simply a loan that you give to the government. When you buy a government bond, you are lending your money to the Government of Kenya. In return, the government promises to pay you interest (called a "coupon") regularly, and to return your full amount at the end of the agreed period.

Think of it like this: instead of a bank paying you interest on your deposit, the government is paying you interest for using your money.

For a quick overview of T-Bills and T-Bonds, see Treasury Bills vs Treasury Bonds in Kenya.

Two Types of Bonds You Should Know

Treasury Bonds (T-Bonds)

• Issued by the Government of Kenya through the Central Bank.
• They come in different lengths: 2 years, 5 years, 10 years, 15 years, 20 years, and even 25 years.
• They pay you interest (coupon) every 6 months (semi-annually).
• The interest you earn is taxed at 15%.
• Minimum investment is KSh 50,000.

Infrastructure Bonds (IFBs)

• Also issued by the Government of Kenya, but the money is used specifically for building roads, bridges, energy projects, and other infrastructure.
• They also pay interest every 6 months (semi-annually).
• The BIG advantage: the interest is completely TAX-FREE. You keep every shilling you earn.
• This makes the effective return on IFBs much higher than T-Bonds for the same coupon rate.
• Minimum investment is also KSh 50,000.

What Is a Coupon?

A "coupon" is just another word for the interest payment you receive from your bond. It is called a coupon because, in the old days, bonds had small paper coupons attached that you would tear off and present to collect your interest.

In Kenya, both Treasury Bonds and Infrastructure Bonds pay their coupon every 6 months (semi-annually). This means if you own one bond, you get paid twice a year.

The Big Idea: Getting Paid Every Month

Here is the clever part. Each bond pays you every 6 months. But different bonds were issued at different times of the year, so their payment months are different. By carefully choosing bonds that pay in different months, you can arrange to receive income every single month of the year.

This is called "coupon staggering" or "bond laddering for income."

How It Works

Kenyan bonds pay coupons in specific month-pairs. For example, a bond might pay in January and July, or in March and September. Here are the six possible payment pairs:

If you buy at least one bond from each pair, you will receive a coupon payment every single month of the year!

A Simple Example

Meet Mwangi, a retired teacher.

Mwangi has KSh 3,000,000 from his retirement savings. He wants a steady monthly income without taking big risks.

His plan: He divides his money into 6 portions of KSh 500,000 each. He buys 6 different bonds, one from each payment pair.

If each bond pays about 14% per year (tax-free IFBs):

Each KSh 500,000 bond earns KSh 70,000 per year in coupons.

Paid semi-annually, that is KSh 35,000 every 6 months per bond.

With 6 bonds staggered across all months, he receives about KSh 35,000 every month.

Total annual income: KSh 420,000 (about KSh 35,000 per month), completely tax-free.

Mwangi now has a predictable monthly income, backed by the government, with zero tax. He sleeps well at night.

How to Get Started: Step by Step

• 1Open a CDS Account: This is a Central Depository System account at the Central Bank of Kenya. You need this to buy government bonds. You can open one through your bank or through a licensed stockbroker. Many banks now let you do this online or at the branch.
• 2Watch for Bond Auctions: The Central Bank of Kenya announces bond auctions regularly (usually every month). Check their website or ask your bank. Each auction document (called a "prospectus") tells you the coupon rate, the tenure, and the payment months.
• 3Note the Payment Months: Before you bid, check which months the bond will pay its coupon. This is how you plan your staggering. You want to collect bonds that, together, cover all 12 months.
• 4Place Your Bid: You can bid through your bank (over the counter), through mobile banking apps that support it, or through a stockbroker. The minimum is KSh 50,000.
• 5Be Patient and Build Over Time: You do not need to buy all 6 bonds at once. Each time a new bond comes up with payment months you are missing, add it to your collection. Over 1 to 2 years, you can build a complete monthly income portfolio.
• 6Reinvest or Spend: Once you start receiving monthly coupons, you can either spend them as living income or reinvest them into more bonds to grow your portfolio even bigger.

New to government securities? Start with how to invest in Treasury Bills in Kenya.

Investing from abroad? Read how diaspora Kenyans can invest in Treasury Bonds.

Explore live bond listings on Serrari to find bonds with the payment months you need.

Visit Serrari's monthly coupon bonds page for curated monthly income bond options.

Should You Use IFBs, T-Bonds, or Both?

The best approach for most people is to use a mix:

• Prioritize Infrastructure Bonds (IFBs): Because they are tax-free, you keep more of your coupon income. If an IFB pays 14%, you keep the full 14%. A T-Bond at 14% only gives you about 11.9% after the 15% tax.
• Fill gaps with Treasury Bonds: IFBs are not issued every month. Sometimes the payment months you need are only available through T-Bonds. Use T-Bonds to fill those gaps in your calendar so you still get paid every month.
• Consider the rate: Sometimes a T-Bond offers a significantly higher rate than an available IFB. Do the math: a T-Bond at 18% gives you 15.3% after tax, which beats an IFB at 14%. Always compare the after-tax return.

Important Things to Know

• Your money is safe: These bonds are backed by the Government of Kenya. It is one of the safest investments available in the country.
• Your money is locked in (but not really): Bonds have a maturity date (when the government pays back your full amount). But if you need your money earlier, you can sell your bond on the secondary market through the Nairobi Securities Exchange. You may get more or less than you paid depending on current rates.
• Coupon rates are fixed: Once you buy a bond, the coupon rate is locked in for the life of the bond. Even if rates drop later, you keep getting your original higher rate. This is a big advantage in a falling-rate environment.
• You can start small: With KSh 50,000 minimum per bond, you can begin building your portfolio even with modest savings. Add more bonds over time as you save more.

KEY TAKEAWAY

By buying Kenyan government bonds that pay their coupons in different months, you can create a reliable monthly income stream. Prioritize tax-free Infrastructure Bonds, fill calendar gaps with Treasury Bonds, and build your portfolio patiently over time. It is one of the safest and smartest ways to create passive income in Kenya.

Check current Treasury Bill rates to benchmark T-Bill yields vs bond coupon rates.

Speak to a Serrari advisor to map out a personalised bond laddering strategy.

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