Even when the yields go up to 18% like in the case of the current year you will only get what the coupon offer i.e 12% for the said 30 year then you deduct the withholding tax...You dont get 15500 but 12000 kshs then you deduct the withholding tax...the 18% is the current market yield i.e the rate its trading at in the secondary market

a few years back we had an argument about the need for kenyan FI OTC market, many wazuans had issues with this now if indeed an OTC market (akin to say the FX mkt) no such thing as an odd lot wud exist and liquidity wud have been better..

Kizee 1 I agree during this years budget reading UK asked the CMA to expedit the process of forming some sort of hybrid bond market.So far it hasnt gone well with brokers who are making a killing out of trading.

Noted.I SALUTE ALL OF YOU GUYS FOR YOUR KIND INFO.

@Maka I just called suntra and they tel me the 30yr bond is going for 92 for every 100.How comes you say 67?

this is ruth from icea thankyou for the input on the bonds investment,food for thought : for the new investors,this is the best time to buy bonds as you can buy them at a discount,but buy with a vision on long term investment of about three years and you will reap the benefits then

@kizee1. Why would liquidity be higher? You have just as much opportunity now to trade.

Hi Scubidu,

Here are the definitions as you have requested.

Held to Maturity (HTM) - these are instances where one buys a bond with the intention of retaining it in your portfolio for good. A notable rationale for that is if one has a fixed duration liability hence you would like to engage in some bit of ALM (asset liability matching)

In such cases, one will recognise the initial cost of the bond, thereafter, at each year end (for instance) adjust the cost for any discount or premium till the value of that bond is equal to the face value of the bond.

Held for trading (HFT)- this catergory relates to speculative transactions per se. For instance, I could decide to sell all my bonds right now due to the rising yields...then buy them sometime next year when I think that the yields will have maxed out.

For this category, the value of the bond has to reflect the current market value - and the changes in the valuation have to pass through the profit and loss.

Available for sale (AFS). This category is abit similar to HTM except that an investor has the flexibility of selling the bond shoud the need arise. For instance, many banks were selling their bonds when the CBK was interfering with the discount window. Banks didn't have many options to get funds other than sell their bonds.

The bonds under this category should also reflect the market value. However, the changes are reflected through the balance sheet and not the income statement.

FYI, with the recent changes in accounting standards, the changes in value for AFS are reflected in the income statement in arriving at comprehensive income - but after net profits. HFT changes are reflected arriving at net profit.

Let me know if you need further clarification.

Cheers

Great explanation as usual Scooby. So how flexible is it for a bank for example to move bonds within the different classifications. I heard about a bank who shifted in excess of 20b from one to another. Are the accountants strict on this?

at the moment a bank must trade thru a bookie, bookies have no reason to offer value, in an OTC enviroment bookies are forced to do so, in say the FX space which is OTC ur not bound to use a bookie as u can call another maker direct however if the bookie offers u value eg by providing u with tighter spreads or with greater liquidity then u wud use said bookies services

as for pds, i think ideally banks only shud offer this service but then the whole suit of reforms is needed (ie move to otc plus allowing short selling)