An investigation into the actual investment Performance of bonds listed at the Nairobi Stock Exchange

Abstract

This study was carried out to establish returns on investment In bonds listed at the Nairobi Stock Exchange. The objective arose from the realization that in Kenya, information on the yield-to-maturity as a measure of performance has not been adequately analyzed. Stratified sampling was used to select thirty government bonds out of a total of seventy four that were listed at the Nairobi Stock Exchange (NSE) from the year 200 I to 2005. However, all the seven corporate bonds listed were considered as part of the sample. Secondary data was collected from the NSE and Capital Markets Authority (CMA) on monthly turnovers, monthly ending prices, interest paid every month, interest rates and maturities of bonds issued. Based on these data, the annual yields-to-maturity of all the bonds was calculated. Yield curves were drawn with the annual yields-to-maturity of the respective bonds plotted against time in years. The study found that there was low performance of bonds during the years 2001 to 2003, and a marked improvement in the subsequent years. It concludes that the overall performance of the bond market could be enhanced with a friendlier regulatory environment, a market driven benchmark yield and availability of a respected credit rating agency. Finally, it has been recommended that further research in this area should be considered and this time involving a longer period of study. Aside from making efforts to increase market participation (increase demand and supply of bonds), the government should also address the critical role of regulators in this market.