Bond Markets in Ghana
WEST AFRICN INSTITUTE FOR FINANCIAL AND ECONOMIC MANAGEMENT
REGIONAL WORKSHOP ON MONEY MARKET DEVELOPMENT AND TECHNIQUES OF SECURITIES TRADING-LAGOS, NIGERIA MARCH 4-14 2008
THE BOND MARKET IN GHANA-CHALLENGES FOR ITS DEVELOPMENT
A. Introduction
A bond has been defined as a debt (loan) instrument which requires the issuer to repay the investor the amount borrowed with interest over a predetermined period of time.
Bonds can be callable, redeemable, convertible, extendable or retractable. They may have warrants attached to them as a sweetner. They may also be income generating or have zero coupons.
Bond investors are exposed to some or all of the following risks: interest rate, reinvestment, call, default, inflation, exchange rate, liquidity and volatility.
Bonds can be issued by the government at any level or by corporate entities, local or foreign, based on an indenture (contract) contained in an offer document. Bonds differ in terms of the issuer, principal, duration, maturity period and the coupon payable.
B. Some terms in the industry
Yield: a measure of returns on investment. There are different types of yield calculations like normal (coupon) yield, yield to maturity (internal rate of return set to a zero net present value (discounted cash flow of an investment).
Duration: measure of the weighted average of cash flows from an investment. A zero coupon bond of n years has a maturity of n years. Coupon bonds have lower durations than stated maturities.
Convexity: measure of the sensitivity of the duration of an asset to changes in interest rate.
Immunization: a strategy of positioning a portfolio of investment such that a change in interest rates will not affect the value of the portfolio. Changes in value occurring in one part of the portfolio are offset by changes in other parts of the portfolio.
C. The Ghanaian experience in the bond market
Prior to the late 1980s, the bond market in Ghana was unexciting. However recent
REGIONAL WORKSHOP ON MONEY MARKET DEVELOPMENT AND TECHNIQUES OF SECURITIES TRADING-LAGOS, NIGERIA MARCH 4-14 2008
THE BOND MARKET IN GHANA-CHALLENGES FOR ITS DEVELOPMENT
A. Introduction
A bond has been defined as a debt (loan) instrument which requires the issuer to repay the investor the amount borrowed with interest over a predetermined period of time.
Bonds can be callable, redeemable, convertible, extendable or retractable. They may have warrants attached to them as a sweetner. They may also be income generating or have zero coupons.
Bond investors are exposed to some or all of the following risks: interest rate, reinvestment, call, default, inflation, exchange rate, liquidity and volatility.
Bonds can be issued by the government at any level or by corporate entities, local or foreign, based on an indenture (contract) contained in an offer document. Bonds differ in terms of the issuer, principal, duration, maturity period and the coupon payable.
B. Some terms in the industry
Yield: a measure of returns on investment. There are different types of yield calculations like normal (coupon) yield, yield to maturity (internal rate of return set to a zero net present value (discounted cash flow of an investment).
Duration: measure of the weighted average of cash flows from an investment. A zero coupon bond of n years has a maturity of n years. Coupon bonds have lower durations than stated maturities.
Convexity: measure of the sensitivity of the duration of an asset to changes in interest rate.
Immunization: a strategy of positioning a portfolio of investment such that a change in interest rates will not affect the value of the portfolio. Changes in value occurring in one part of the portfolio are offset by changes in other parts of the portfolio.
C. The Ghanaian experience in the bond market
Prior to the late 1980s, the bond market in Ghana was unexciting. However recent