Income Strategy — Maximizing Coupon Cash Flow
The income strategy prioritizes regular, predictable coupon payments by concentrating investments in the highest-yielding segments of Angola’s bond market. With OTNR coupon rates of 18-22%, this approach generates substantial current income that can be consumed, reinvested, or redirected to other financial goals.
Strategy Logic
Angola’s fixed-rate OTNRs pay semi-annual coupons at rates that are exceptionally high by global standards. The income strategy exploits this by:
- Allocating to the longest available maturities, which carry the highest coupon rates (up to 22% for 10-year OTNRs)
- Staggering coupon payment dates across multiple bond series to create a more frequent income stream
- Reinvesting excess income to compound returns over time
Income Comparison by Instrument
| Instrument | Annual Coupon | Semi-Annual Payment | Net of 15% IAC | Net of 10% IAC (>3yr) |
|---|---|---|---|---|
| OTNR 2-year | ~19.0% | ~9.5% | ~8.08% | N/A |
| OTNR 3-year | ~19.5% | ~9.75% | ~8.29% | ~8.78% |
| OTNR 5-year | ~20.5% | ~10.25% | N/A | ~9.23% |
| OTNR 7-year | ~21.0% | ~10.5% | N/A | ~9.45% |
| OTNR 10-year | ~22.0% | ~11.0% | N/A | ~9.90% |
| OTX USD-indexed | ~8.0% | ~4.0% | N/A | ~3.60% |
Net figures assume standard IAC withholding. Bonds with maturity >3 years benefit from the reduced 10% IAC rate.
Building an Income Portfolio
Step 1: Target the High-Yield Segment
Focus on OTNRs with 5-10 year maturities, where coupon rates reach 20-22%. These instruments benefit from both the highest nominal yields and the reduced 10% IAC rate (versus 15% for maturities under 3 years), maximizing net income.
Step 2: Stagger Coupon Dates
By purchasing multiple OTNR series with different issuance dates, you can create a portfolio where coupon payments arrive at different times throughout the year. A well-constructed portfolio might produce income every month or every other month rather than only twice per year from a single series.
Step 3: Consider the Ladder Element
The income strategy pairs naturally with the bond ladder approach. As shorter-maturity bonds roll off, reinvest into the longest available maturity to maintain the highest average coupon rate in the portfolio.
Step 4: Reinvest or Consume
Decide in advance whether coupon income will be:
- Consumed — Used for living expenses or other needs (the pure income approach)
- Reinvested — Deployed into new bond purchases, compounding returns. Use the weekly BT auction for frequent reinvestment opportunities.
- Mixed — Consume a portion and reinvest the remainder
Income Stream Example
For AOA 10,000,000 invested in a 5-year OTNR with a 20.5% coupon:
| Period | Gross Coupon | IAC (10%) | Net Coupon |
|---|---|---|---|
| Every 6 months | AOA 1,025,000 | AOA 102,500 | AOA 922,500 |
| Annual total | AOA 2,050,000 | AOA 205,000 | AOA 1,845,000 |
| Over 5 years | AOA 10,250,000 | AOA 1,025,000 | AOA 9,225,000 |
Over the full 5-year holding period, the investor receives AOA 9,225,000 in net coupon income — nearly the entire original principal amount — plus the return of the AOA 10,000,000 principal at maturity.
Risk Considerations
- Inflation erosion — While nominal coupons of 20%+ are attractive, inflation at 15.7% means real income is approximately 4-6%. Monitor the real yield environment.
- Reinvestment risk — If the BNA cuts rates, future coupon reinvestment will occur at lower yields, reducing compound returns.
- Concentration risk — Heavy allocation to long-dated OTNRs increases exposure to sovereign credit risk and illiquidity. See the risk analysis.
- FX risk — For foreign investors, high kwanza coupons may be offset by currency depreciation. Consider allocating a portion to OTX bonds via the FX play strategy.
For tracking your coupon payments, see the coupon tracker.