Buy-and-Hold Strategy for Angola Bonds

Buy-and-Hold Strategy — Holding Angola Bonds to Maturity

The buy-and-hold strategy is the most natural approach for Angola’s government bond market, where limited secondary market liquidity makes early exit costly and uncertain. By purchasing bonds at auction and holding them to maturity, investors lock in a known yield and eliminate mark-to-market volatility, receiving predictable coupon income throughout the holding period.

How It Works

The investor purchases government securities — typically OTNRs or BTs — at a primary market auction or on the secondary market and holds them until the maturity date, collecting all coupon payments along the way.

Return components:

• Coupon income — Semi-annual fixed payments for OTNRs (18-22% annualized depending on maturity)
• Discount accretion — For BTs purchased at a discount to face value, the return is the difference between purchase price and par at maturity
• Reinvestment income — Returns earned by reinvesting coupon payments into new instruments

Current Yield-to-Maturity by Instrument

Yields are indicative. Actual YTM depends on the specific auction clearing rate or secondary market purchase price.

When Buy-and-Hold Works Best

This strategy is most effective when:

• Yields are at cyclical highs — Locking in a 20%+ yield on a 5-year OTNR is most valuable when you expect the BNA to cut rates in the future. If rates decline, your locked-in yield becomes increasingly attractive relative to new issuance.
• You have no liquidity needs — Since secondary market exit is uncertain, this strategy requires that the invested capital is not needed until maturity.
• Real yields are positive — With inflation at 15.7% and OTNR yields of 18-22%, current real yields of 2-6% make hold-to-maturity returns genuinely positive in purchasing power terms.
• You prefer simplicity — No need to monitor secondary market prices, manage duration risk, or time trading decisions.

When Buy-and-Hold Is Risky

• If you may need liquidity — Unexpected cash needs could force a secondary market sale at a significant discount. Consider the bond ladder strategy if you need periodic liquidity.
• During rate hike cycles — If the BNA is raising rates, new issuance will offer higher yields than your existing holdings. While your coupons are locked in, the opportunity cost increases.
• Currency depreciation — For foreign investors, holding a 20% kwanza bond to maturity delivers negative returns if kwanza depreciation exceeds the yield. Consider the FX play strategy for currency protection.
• Sovereign credit deterioration — In an extreme scenario, credit default risk (however remote) increases with longer holding periods. Monitor the debt sustainability metrics.

Implementation Guide

1. Select maturity — Choose based on your investment horizon and yield target. Longer maturities offer higher yields but more risk.
2. Participate in auctions — Use the Portal do Investidor for retail access or a bank for institutional bids.
3. Reinvest coupons — Deploy semi-annual coupon payments into new instruments immediately. The weekly BT auction provides a convenient reinvestment vehicle.
4. Monitor but do not trade — Track coupon payment dates via the coupon tracker, but resist the urge to sell based on secondary market price fluctuations.
5. At maturity — Principal is returned automatically to your linked bank account via CEVAMA.

Tax Considerations

Buy-and-hold investors benefit from the reduced IAC rate of 10% (versus 15% standard) on bonds with original maturity exceeding 3 years, making OTNRs of 5 years or longer particularly tax-efficient. See the tax guide for details.

Combining with Other Strategies

Buy-and-hold forms the core of most Angola bond portfolios, complemented by:

• Bond ladder for staggered maturity access
• FX play allocation for currency hedging via OTX bonds
• Income strategy to maximize coupon cash flows