Hi Emlyn,

Am going to assume that there is some aspect of confidentiality in your query...so I will guestimate the duration for the liability is five years.

So, if that is the case, it makes more sense for one to invest in five year securities especially fixed income investments to match the payment of the liability.

In constrast, one may choose to equally in a three year and seven year investment that will result in a "weighted" average duration of five years. The issue with this strategy is that after three years, you will be required to invest another two year bond and you will be forced to sell the seven year bond when times up.

The issue with the reinvestment is that the reinvestment rate may be unfavourable to the investment manager...and for the latter, once could be forced to sell it at a bad price.

The first illustration is some form of bullet strategy while the other is a barbell strategy. Let me know if this makes sense.

Regards

Hi Emlyn,

A bullet strategy would make more sense from an ALM point of view - compared to a Barbell strategy. Remember that there is a cost to liquidity in terms of getting the maximum possible value of your investment.

For rebalancing, I would suggest that you determine the Kenya shilling duration (I read it as dollar duration) at the time you are making the investment. Thereafter, determine whether the duration amount has either increased or decreased over time.

This would determine whether you need to rebalance your investment.

Let me know if this makes sense

Regards

@scooby, nay it doesn't. Sasa barbell ni ile natumia kwa gym?

What on God's good earth is this thread about? Can you folks simplify it a little for laymen/women like me?