NROCC Principal repayment: 2023 vs 2024 market dynamics

As the landscape of fixed-income investments continues to change, the upcoming maturity of NROCC (National Road Operation and Construction Company Ltd.) 9.375% bonds presents both opportunities and challenges for investors as they find themselves at a crossroads concerning their next steps. With the maturity date approaching in November 2024, it is crucial for bondholders to devise effective strategies for reinvestment. This juncture provides an excellent opportunity for investors to reassess their strategies, consider market dynamics, and make informed decisions regarding reinvestment.

Investors in the NROCC 9.375% bond will remember that 50% of their principal was repaid in 2023 and they had to find reinvestment options for those funds. At the time interest rates remained high as governments worked to control the elevated levels of inflation across the globe. Finding high coupon, low priced bonds, was not difficult given the prevailing market conditions and investors were able to reinvest in bonds with yields close to what they earned from their NROCC bond.

Only 12 months later, the economic landscape and market conditions have vastly changed, and this has made reinvesting more challenging. Since NROCC’s partial principal repayment exercise in 2023, governments have started to cut interest rates as inflation rates have fallen from their recent highs to more acceptable levels. This move to cut rates was also undertaken to stimulate growth in the worlds economies by encouraging borrowing and investing.

This has changed the economic landscape and market conditions globally. For bond investors, this means that bond prices have increased to levels much higher than they were just a year ago. Many bonds which were trading at discounted prices last year, have seen price appreciation over the brief period and currently trade at premium prices. Since price and yield are inversely related, this price appreciation has caused yields on these bonds to fall, and in some cases fall to levels that could be deemed unattractive, especially when compared to higher yields of last year.

The changes in market conditions have also been seen with the issuance of new bonds to the market. New bonds issued by investment grade companies during the high-interest rate environment (2023), were comparatively more attractive than bonds currently being issued by the same companies. We have seen where Lloyds Bank issued a bond at 8% just over a year ago, and in the past few weeks had a new issue at only 6.75%. The reduced interest rates on new bonds will make it more difficult for persons with upcoming maturities to maintain the yields or level of income they previously received.

As the maturity of the NROCC bond approaches, the importance of proactive financial planning cannot be understated. By carefully assessing your financial goals, understanding the changes that have occurred with economic conditions and market dynamics, and by planning your reinvestment strategy, you can turn this critical juncture into an opportunity for growth. Thoughtful planning, with the aid of your licensed financial advisor, can pave the way to achieving your financial goals as you seek to reinvest when your current investment matures.

Dwayne Neil, MBA, is the AVP, Personal Financial Planning at Sterling Asset

Management. Sterling provides financial advice and instruments in U.S. dollars and

other hard currencies to the corporate, individual and institutional investor. Visit our

website at www.sterling.com.jm Feedback: if you wish to have Sterling address your

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