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KA-INVESTOR

• May 18, 2009
• Investing in Re-opened Bonds

  Posted: May 18th, 2009, 9:51am EDT

  The demise of the NSE has seen Central Bank of Kenya (CBK) become the biggest beneficiary with bonds and bills being over subscribed every other week. Late last year government reduced the minimum initial investment amount in treasury bills to Ksh.100,000 from Ksh.1,000,000. CBK has now resorted to reopening of bonds issued in the previous years. Last moths CBK reissued a Ksh.7 billion 5-year bond that was successfully subscribed and is now planning to reopen a 15-year bind that was issued two years ago (07).
  
  Reopening of securities is a common practice in the developed markets. This is done when seeking to eliminate bond market fragmentation (existence of too many but small outstanding bonds scattered everywhere in the secondary market). Fragmentation leads to unstable and uncertain bond prices and reduces free trading due to few investors (who buy and hold bonds reducing liquidity)
  
  When a bond is reopened, an old bond is offered to the market on a date other than its original issue with a view to increasing its outstanding amounts and expanding the original amounts. On reopening investors are offered the same instrument (bearing the same features as the existing bond – same maturity date n coupon rate) except for offer date, offer price and yield.
  
  Requirements to participate in a reopened bond are the same as those of any government securities auction i.e. you need to have opened a CDS account with CBK and complete the application form with all the details has specified in the prospectus.