Investors in the East African Capital Markets will benefit from a new and modern way of gauging the performance and value of their security bonds launched in Nairobi last week.

The first ever bond index to be used as a benchmark for performance of fixed income securities was unveiled in the wake of rising investment in bonds in the region.

The bond index unveiled by leading fund management company AIG will look at measuring and determining the value of bonds that deal with capital securities on the national stock market.

According to the seniour investment manager at AIG Peter Wachira, debt instruments have in the recent past gained prominence in Kenya with increased investment in long term bonds and securities driven by the need to diversify client portfolio to less riskier options therefore creating the need for a more reliable benchmark.

The total return index which is currently considered as a more accurate measure of actual performance will apply for selected government fixed rate treasury bonds with a maturity period of more than three months.

"Since 2000, we have seen a significant shift in debt market with outstanding treasury bonds accounting for over 70 per cent of government domestic debt. This was as a result of the re-launch of the government bond programme that saw the introduction of fixed rate bonds. Currently, Kenya's longest bond is the 15 year paper," said Wachira.

AIG fund managers said investors and market players had for a long time relied on the Treasury bill rate as the primary benchmark for fixed income securities that was not representative of the actual performance.

This system of using Treasury bill rate was akin to comparing apples and oranges and as such made it difficult for investors to gauge how their bond portfolios were performing and being affected by the changes in interest rates and other market factors. "It is for this reason that we at AIG found it fit to come up with an appropriate index that would accurately and objectively reflect returns from price gains and interest income on a portfolio of traded Kenyan securities," said Wachira.

Acting Capital Markets Authority (CMA) CEO Stella Kilonzo lauded the move terming it timely especially at a time when investors were getting increasingly sophisticated with their investment options that called for accurate measurement benchmarks.

"We commend AIG for having devised such an index which will provide invaluable insights and guide investors on the risks and returns for investment. This is also a manifestation of the transformation of our capital markets and the need therefore to devise ways of encouraging more investors appreciate the importance of participating," said Kilonzo.