An Executive Summary of the Bond eBook: Everything You Need To Know About Bonds Before Investing
What are Bonds?
A bond is a fixed-income security that is issued by corporations and governments to raise capital. The bond issuer (corporate/government) borrows capital from the investor and makes fixed payments to them at a fixed (or variable) interest rate for a specified period.
Types of Bonds
Government bond – bond is offered by the government either to support budgetary needs or to fund infrastructure projects.
Corporate bond – bond is offered by companies to fund large projects.
Eurobond – a fixed-income debt instrument (security) denominated in a different currency than the local one of the country where the bond’s been issued.
Government bond – bond is offered by the government either to support budgetary needs or to fund infrastructure projects.
Corporate bond – bond is offered by companies to fund large projects.
Eurobond – a fixed-income debt instrument (security) denominated in a different currency than the local one of the country where the bond’s been issued.
Benefits of Bonds
Low risk – the government has never defaulted from its bond obligations
Tax-exempt – infrastructure bonds issued by the government are tax-exempt
Regular return – government bonds pay interest every six months guaranteed making them ideal for passive income
Liquid market – bond weekly turnovers are in tens of billions of shillings
No forfeiting earned interest – if you wish to sell your bonds, you do not forfeit your interest like in bank fixed deposits
Loan collateral – bonds can be used as collateral when getting a loan from any bank
Bond trading – you can buy and sell bonds by taking advantage of market movements and make profits
Capital preservation – you cannot lose your principal in a bond investment if you hold until maturity.
Low risk – the government has never defaulted from its bond obligations
Tax-exempt – infrastructure bonds issued by the government are tax-exempt
Regular return – government bonds pay interest every six months guaranteed making them ideal for passive income
Liquid market – bond weekly turnovers are in tens of billions of shillings
No forfeiting earned interest – if you wish to sell your bonds, you do not forfeit your interest like in bank fixed deposits
Loan collateral – bonds can be used as collateral when getting a loan from any bank
Bond trading – you can buy and sell bonds by taking advantage of market movements and make profits
Capital preservation – you cannot lose your principal in a bond investment if you hold until maturity.
Bond Markets
Primary bond market – bonds here are directly issued by the government (through CBK). You can only buy bonds here and the successful buyers are chosen through a bidding process (like an auction)
Secondary bond market – Investors trade (buy and sell) bonds from each other. Successful bond trades here come as a result of the agreement between a bond buyer and a bond seller.
To buy/sell bonds, you must have a CDS Account with the CBK. This is a dedicated account used by the CBK to hold bonds and to keep track of all bonds issued by the government. It connects your bonds to your bank account so that CBK knows exactly which account to pay interest to on a bond you hold.
To trade in bonds, you must either work with one of these two participants:
Broker – an entity/person licensed by the CBK to execute bond trades for clients who want to buy/sell bonds.
Dealer – an entity licensed by the CBK to execute bond trades as well as hold bonds on behalf of clients in their CDS Account. The client opens a nominee CDS Account with the dealer through which they can trade from.
Primary bond market – bonds here are directly issued by the government (through CBK). You can only buy bonds here and the successful buyers are chosen through a bidding process (like an auction)
Secondary bond market – Investors trade (buy and sell) bonds from each other. Successful bond trades here come as a result of the agreement between a bond buyer and a bond seller.
To buy/sell bonds, you must have a CDS Account with the CBK. This is a dedicated account used by the CBK to hold bonds and to keep track of all bonds issued by the government. It connects your bonds to your bank account so that CBK knows exactly which account to pay interest to on a bond you hold.
To trade in bonds, you must either work with one of these two participants:
Broker – an entity/person licensed by the CBK to execute bond trades for clients who want to buy/sell bonds.
Dealer – an entity licensed by the CBK to execute bond trades as well as hold bonds on behalf of clients in their CDS Account. The client opens a nominee CDS Account with the dealer through which they can trade from.
CDS Accounts
Personal CDS Account – you get this by going to the CBK and registering. The process takes 7 business days at the minimum. With a personal CDS Account, you will be able to buy bonds without assistance from the primary market but for any secondary market trades, you will need a broker/dealer to facilitate your trades.
Nominee CDS Account – you get this by getting an account with a registered dealer (Authorized Securities Dealer). The process takes a shorter time and can be done from the comfort of your home. Dealers can act as brokers hence to buy/sell bonds, you can do this from the comfort of your home through your dealer.
Personal CDS Account – you get this by going to the CBK and registering. The process takes 7 business days at the minimum. With a personal CDS Account, you will be able to buy bonds without assistance from the primary market but for any secondary market trades, you will need a broker/dealer to facilitate your trades.
Nominee CDS Account – you get this by getting an account with a registered dealer (Authorized Securities Dealer). The process takes a shorter time and can be done from the comfort of your home. Dealers can act as brokers hence to buy/sell bonds, you can do this from the comfort of your home through your dealer.
Bond Strategies
Capital preservation – bonds have high-interest rates protecting your money’s value from being watered down by inflation.
Financial freedom – bonds pay regular guaranteed and certain income which can be used for passive income streams and thus financial freedom.
Defense strategy – bonds are good for diversifying against more volatile investments such as stocks. They move in opposite directions such that when stocks are underperforming, bonds are usually performing very well.
Retirement – bond interest payments can be used to pay for living expenses in retirement ensuring you never have to withdraw from your earned savings to maintain your retirement lifestyle and hence increase the lifespan of your retirement savings.
Bond trading – you can take advantage of the price movements of bonds and buy cheap and sell bonds expensively to lock in profits.
Sinking fund – if you reinvest your bond interest payments back into bonds, you can speed up your saving process and achieve your financial goals faster.
Bonds have many innovative uses and are perfect for any investor, be it a passive or an active investor. With inflation rates at almost 10% and bond rates having passed the 14% ceiling, now is the best time to begin your bond investment journey.
Private Wealth Capital LTD is an authorized securities dealer meaning you don’t need to even get a CDS Account with the CBK to begin your bond investment journey. We got you covered.
Reach out today and we will get you started on your investment journey:
Phone: 0715008946
Email: info@privatewealth.co.ke
Website: privatewealth.co.ke
Capital preservation – bonds have high-interest rates protecting your money’s value from being watered down by inflation.
Financial freedom – bonds pay regular guaranteed and certain income which can be used for passive income streams and thus financial freedom.
Defense strategy – bonds are good for diversifying against more volatile investments such as stocks. They move in opposite directions such that when stocks are underperforming, bonds are usually performing very well.
Retirement – bond interest payments can be used to pay for living expenses in retirement ensuring you never have to withdraw from your earned savings to maintain your retirement lifestyle and hence increase the lifespan of your retirement savings.
Bond trading – you can take advantage of the price movements of bonds and buy cheap and sell bonds expensively to lock in profits.
Sinking fund – if you reinvest your bond interest payments back into bonds, you can speed up your saving process and achieve your financial goals faster.
Bonds have many innovative uses and are perfect for any investor, be it a passive or an active investor. With inflation rates at almost 10% and bond rates having passed the 14% ceiling, now is the best time to begin your bond investment journey.
Private Wealth Capital LTD is an authorized securities dealer meaning you don’t need to even get a CDS Account with the CBK to begin your bond investment journey. We got you covered.
Reach out today and we will get you started on your investment journey:
Phone: 0715008946
Email: info@privatewealth.co.ke
Website: privatewealth.co.ke
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