Currently, Zambian Government Bonds are transacted at a discounted rate, signifying a sale below the nominal value of the bond. The difference contributes to capital gains or profits for the investor. Additionally, investors receive periodic coupon payments calculated on a per annum basis determined by a predetermined coupon rate at six-month intervals.

Presently, investors have enjoyed the joy’s of a dual income stream from Bond placements, benefitting from both capital gains (the variance between par value and face value) and coupon rates.

Recent changes have introduced a revised computation of earnings on GRZ Bonds. The changes and effectss have been outlined below:

1. Investors will no longer realize gains from the discounted price, consequently, the initial Bond purchase amount or investment at placement will align with the face value expected at maturity. For instance, investing K500,000 entails that you receive the initial  K500,000 as face value at maturity (without realising capital gains).
2. There are indications that Coupon rates will now be aligned with prevailing market yield rates to mitigate the impact of not receiving yield rates on investments. This adjustment compels investors to reinvest their coupons in other investment vehicles during the Bond’s tenor. Under the revised calculations, a 2-year, K500,000 Bond might yield up to 17% per annum in coupons compared to the previous 9%.
3. It is imperative to note that coupon rates will no longer be fixed but determined through the bidding process, aligning with the current yield rates bidding process. Consequently, investors will only be preview of the actual coupon rates post-auction when bond auction results are released.
4. Despite the removal of yield rate at maturity but with the increased coupon rate aligned with market yield rates, the net interest income from the Bond will exceed inflation, thereby safeguarding the value of the invested capital.
5. We can only hope that the 15% withholding tax announced earlier this month will not be enforced, given the elimination of the discount interest at maturity in future bond transactions.
6. Current bond holders are not subject to this provision. Please be advised that the December auction marks the conclusion of the opportunity to leverage on the discounted price.
7. This change signifies an increase in cashflow opportunities for individuals looking for regular income. This might be either to leverage on other investment opportunities, supplement their current income or as a retirement income stream, whilst still preserving your capital.
8.  It has been noted that this might be due to alignment with other markets i.e South Africa that also operate on an equal Investment-Face value approach. This alignment may also pave the way for the introduction of additional securities options yet to be unveiled.

Our Investment Financial Advisors are on standby to answer any of your questions and attend to any concerns or queries. For portfolios saturated in the fixed income asset, now might be the best time to revise your asset allocation. In conclusion, Bonds still remain a great option with the most highlighted quality of being a low risk investment vehicle.

Thoughtful investing made for you.

Lyapa 

CEO