RMB Namibia issues first inflation-linked replica bond

Known as the FNB ILB, the bond issued by RMB Namibia, is to grow the country's fixed income market as an alternative inflation-protected asset to the government issued debt. The FNB ILB replicates the existing five-year Government Inflation linked bond, the GI22.

Considering the bank's view that the local Consumer Price Index (CPI) growth will continue to print above the 6% upper target for the next 18 months, the FNB ILB serves as an attractive hedge, as the ­semi-annual coupon payments and final nominal amount are designed to track the movements in price levels.

“This landmark product is the first of its kind in our local market and has attracted significant institutional interest, both locally and internationally,” says Selma Kapeng, Head of Global Markets at RMB Namibia.

“The growing popularity of ILBs is attributed to the rising demand for inflation protection. Aside from being an inflation hedge, ILBs are weakly correlated to other risk assets, thereby lessening volatility and increasing diversification within a multi-asset class portfolio, particularly in times of economic uncertainty and market stress.

The Replica bond is a great innovation and is in line with RMB's mission to be the fixed income house of choice in Namibia,” adds Kapeng.

“ILBs can provide value to a host of Namibia's investors pursuing diverse strategies, such as pension funds and insurance companies, which could apply linkers to liability-driven investment strategies and asset managers who can use them to generate alpha. We are very excited about prospects that a product like this will bring to our growing financial market.”