@emlyn. I find this statement interesting. Using the logical above, how would the yield curve look if a bond with a higher coupon rate (high yield) has a lower duration? I'm also doing some research on this, do you have an online source you could share with me that could explain the above statement? Thanks.

@scooby. The profile of most bond portfolios for banks haven't changed expect perhaps for CFC, NIC and DTBK who have more bonds under held-for-sale & available-for-sale. In the cfc annual report a bulk of the government securities were tradable and it reflects in the non interest income.

@emlyn. Great stuff man. Although I'll admit I haven't a clue what have of that article said. But now that you have done the research, can you make a play on this market? Say I gave you a bond fund to run, what would you suggest? government or corporate bond? etc.

@emlyn. Got some stats on trading of corporate bonds trading at the NSE in 2010.

KenGen is the most vibrant off course. Traded about 4.8 billion since the start of 2010 and it's yields have dropped from 12.58% last year to 8%-9% now.
FXD (CFC Stanbic) 2009/7Yr made 2 trades at 8.5% and 11.9% for 82 million each.
Barclays FXD (MTN)2008/7Yr traded 300,000 at at 11.5% (1 trade).
FXD (Safaricom) 2009/5Yr 5 traded 200 million at 9% (1 trade).

There seems to be an issue of liquidity. I heard Nakumatt have some sort of MTN for 11%, though I can't confirm it. But it would be nice if one could get a hold of CFC's senior notes especially considering how useless the bank is. I wouldn't want to hold anything else in it.

@scooby. No mention of bond valuation in the BD article below:

http://www.businessdaily.../-/9iu47fz/-/index.html

They just mention one-off disposals in bond portfolios. We discussed this in an earlier post. Are they missing something? Looking at the corporate banks NIC, DTBK, CFC and even I&M shows a large bulk of bonds under tradable assets by Q1. Are these classified under unrealized gains if they're based on valuation?

@emlyn. Sorry but I assume that the senior tranche has some sort of security. But given the changes in the group, restructuring, is the senior tranche secured against the assets of the bank or the group?

Great discussion guys. A lot of info to digest.

About a week ago, I was in an impromptu discourse with a politician who is targeting a Senate seat. The guy is a highly training Finance expert and he implied that should he win that seat, he would try and orchestrate Kenya's first municipal. I chuckled at the thought but then it dawned on me how such a municipal would benefit the county of interest. But then, would it have any takers? With the current aversion to politics, can Kenyans trust a politician with their money?

South Africa and India have a booming market for municipals. Many US states and scandinavian cities have been built using municipals. Can Kenya?

kwanza how much infrustructure growth has been funded by the various IFBS issued by CBK? apart from 1bn on thika road(IFB1) anyone know?

@emlyn. That concept of the tranches for bonds is interesting because credit rating agencies in international markets had a hard time assigning a credit rating on them b4 the financial crisis, non? Did CFC ever get a credit rating cos that's would have helped? But if it's unsecured paper, one would be buying on the strength of the group but now that they're no longer married, it's a whole new dynamic, non? Is it less riskier now than b4? (you don't have to answer all the questions, I'm just thinking out loud).

Ta. very much scoobs. So if they could use the Chinese model it would be great for the deepening of the market (our greedy stockbrokers-a lot of captive business). Incidentally research shows that intermediaries are a cheaper option to bank syndications. But like kizee mentioned a municipal bond would be backed by the municipality (not GOK gauranteed right). So we're trusting kanjo to pay us back?

By the way is there an implicit agreement between Kenya and Chinese on what happens when they finish a road. These guys are not going home! Here illegally like them Ethiopian dudes (only they have money). I hear they're buying up land in places like Karen (and have malizad most of the stray guwi in Nai already, whoa).

But if we look at the four IFRB and their projects. They specifically mention three sectors (1) Roads (23.3 bn so far expected 6.1 bn more), (2) Energy (15.9 bn already;expected 17.2 bn more) and (3) Water&Sewage (12 bn so far;expected 8.4 bn more). So from all four bonds they'd raise say 84.7 bn and the average interest rate (considering the tax exemptions) is about 9.75%, so we're looking at interest payments of say 8.2 bn pa. But like you said some of these projects may not result in tangible revenue (unless it's implied in higher revenue, e.g., KEnTRaco & GDA investments boosting KenGen's revenues). So quantifying gains on infrastructure seems difficult; A private sector player would be asked for a payback period?

The only road project mentioned is Thika. The only water projects were 229 water supply systems and 200 boreholes and only energy project were KenTraco & GDA activities. The rest was kind vague, with no particular timeline. I don't even think they have to stick to any promise, because funding is funding. If Safcom wants to issue a bond to part-finance dividends then it's all just funding; the govt can do the same.