Fixed income securities

Ok, away from the depressing world of stocks, and on to the fixed income side. Odegle has given us quite some insight on the bonds world and I would love to join him in this discussion.

Fixed income securities can best be appreciated under three different concepts;

The duration (term)- long or short term,

The issuer – government or corporate.

The coupon disbursement – fixed or floating rate

Duration;

Fixed income securities are channels used by companies to borrow both short term funds – for recurring costs, and long term funds – for capital use. The securities duration implies the time it will take for the issuer to give back the principle to the lender. Short term falls below 1 year while long term goes above a year. This however differs in different countries.

Issuer

Fixed income securities can either be offered by the government in which case they are called Treasury bonds (Long-term) or treasury bills (short term). Bonds not offered by the government fall under corporate bonds, while short term non-government bonds are commercial papers. Names also differ in different regions. The treasury bill for example is called a gilt in the UK, and while treasury bills in Kenya are either 91 day long or 182 day long, in the UK, a gilt can have a term as long as two years.

Coupon Disbursement.

Coupon is the interest rate earned on bonds, and this can either be a fixed rate, where the interest rate quoted at offer point holds to maturity, or floating, where the interest rate changes with the changing environment. The floating rate is usually pegged to certain indicative rate. In Kenya, floating rate bonds are pegged to the 91 day treasury bill.

Interest is usually paid at different intervals, with most of the Kenyan bond coupons being under a semi-annual schedule, while other options such as quarterly or annual coupon payment being found in other countries around the world.

Treasury bills do not attract an interest parse but instead are discounted at offer, implying, the investor pays less but redeems the whole offered amount at maturity. This then translates as the interest to the investor. Most 1 year bonds offered by the government are zero coupon bonds and are also discounted like the Treasury bill.

Treasury bonds in Kenya are offered monthly while treasury bills are offered weekly. An auction is done every Thursday evening and the results announced on Friday.

While the treasury bonds market is not as developed as in other markets, they provide a good investment channel for risk averse guys, and also an escape haven for bad times on the equities market. The oversubscription that has been cited on the bills and bonds market over the last three months might be an indicator of the equity to fixed income funds flight.

Wow!! Quite a mouth full!

Blog Silence!!!

Ok whats happening to the bizz blog world??? Guys have gone silent! Cold tusker last talked on Tuesday last week, and so did Pesa tu. At least Bankelele and Riba Capital have been more recent.

Please don’t let the depressed market keep you that quiet. Whatever you are going through, so are we and many others. It’s a depressing state, but don’t worsen it by going off.

I feel your pain, but we are meant to keep online and keep each other strong on this blog side of life!!

Speaking of depression, out of 36 active counters, only Standard Chartered, Scan group, Eveready and Kengen recorded price appreciations. All other active counters shed, with KCB, despite currently trading cum div and split, capturing the largest drop, down Kshs. 18 to close Kshs. 2 below the Kshs. 200 level. Jubilee also slid below the Kshs. 200 level to hit a low of Kshs. 193.

I am tempted to ask whether we can get a prophet(ess) who can forecast how low the market will go and when we will reach this point. If they can prophesy about earthquakes and Tsunamis, then why not on the market?

What shall stir the bull back to action??

With the bourse struggling from the damaging publicity wrought by the FT exposure and consequent - not so good - tales of brokers and market loophole, nothing the listed companies do seems to be touching a sensitive nerve on the investor. Not the share splits, generous dividends, bonus, nor strong profit growth appear to be pushing any correct buttons.

The market seems to have completely succumbed to a myriad of issues unearthed by the FT saga, added onto the political environment, and just when we think the decline is over, another price goes lower.

Despite the prices having shed to mwananchi levels thanks to the recent spate of splits and drastic market correction, the question is whether mwananchi still has enough trust in the bourse to take up the opportunity of owning shares at such attractive lows.

Eveready practically traded below its offers price on Wednesday having hit a low of Kshs. 9.00, and I was sure we were looking at another “KQ like” post offer drop to Kshs. 6.00 after having been offered at Kshs. 11.00. At least it recovered to Kshs. 10 on Friday, but I don’t know whether we should be holding our breath on this one.

Kengen also seems to be dipping gradually and getting uncomfortable close to its offer price after hitting a low of Kshs. 17 on Friday while Kenya Airways last traded at the current Kshs. 80 levels in January last year.

Kenya Commercial slipped down to the current Kshs. 219-220 trading price despite having declared a Kshs. 6.00 dividend per shares and promising its share holders a 10:1 share split. Jubilee has nose-dived from February’s Kshs. 330 levels to Fridays Kshs. 210 low while Nation Media has left many an investor counting their losses.

Despite all this, I still maintain, its BUY time!