Why did Kenya's Treasury propose barring institutional investors from infrastructure bonds?

I was having a conversation with a friend a while ago, we got to talking about parking your money in bonds for easy & predictable cashflow. He, for good reason being an anti-treasuries guy, was totally against this. According to him a couple growth stocks and a few blue chip stocks could beat a 10-yr bond within the same time period. After showing him the yield on a 10-yr bond, an impressive 17%, he asked me 'bonds are termed as low-risk investments, how on earth would a low-risk investment return 17%?'. He then went on to tell me about a proposal by the Kenya Treasury to bar institutional investors from buying some bonds. Not being a bonds guy either, I gave up trying to play devil's advocate.

The proposal

The national treasury tabled a proposal before parliament in May, they wanted institutional investors like banks, pension & mutual funds and insurance companies to be barred from investing in the nation's infrastructure bonds. The country's infrastructure bonds have decent returns and enjoy tax-free status, this means that unlike other government securities, investors do not pay a 10% withholding tax on income from the investment. This was done initially to entice investors, encouraging them to buy infrastructure bonds(in my opinion). It worked like a charm; it actually worked so well that the government wants to reverse this. According to the Treasury the reason behind the move is 'to manage competition between tax-free infrastructure bonds and Treasury bonds', in an effort to reform the primary market and reduce borrowing costs.

Other possible reasons

This can't be the only reason, why would a borrower be picky about who can lend him money? Here are some plausible reasons why:

Taxes

The government has been looking for ways to raise funds; this could've been one of the ways. How would barring investors from buying infrastructure bonds help? Infrastructure bonds as aforementioned enjoy tax-free status i.e the income from infrastructure bonds is exempt from the 10% withholding tax charged on other bonds. For institutional investors this is amazing, they get the most out of their investment. Barring them from these tax-exempt bonds would leave them with no other choice but to invest in the other bonds or leave the bond market altogether. Hypothetically, if all their capital flows to the other bonds, the government would now get a cut (10% - withholding tax) and fund government activities.

Risk

A lot of institutional investors buy these infrastructure bonds in bulk, the bonds are a 'safe' investment with pretty good returns. A lot of critical firms have skin in the bond game, this then means that if something were to happen, all these institutions would be in trouble. This kind of systemic risk is never a good thing, it's the type that could cause an economic collapse. The government has noted this and decided to de-risk the market with a heavy-handed approach of flat out barring these investors from buying infrastructure bonds. This would then beg the question, how safe are these bonds? I'll let you be the judge of that.

Conclusion

Government treasuries are a good way to invest passively, they're generally safe and give you a return on your investment, which is what we're all looking for. However, every investment comes with its own level of risk. As investors our job is to look for the highest returning, low-risk investments; in our search for low-risk investments, we should not solely rely on historical data to make a call. Sometimes the red lights are flashing and we might want to factor that in before deploying capital.

In my friend's opinion if you want low-risk you can buy Swiss bonds that yield .5%, that's true low-risk.

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