The Nigerian Stock Exchange (NSE) has admitted about N1.7 billion worth of Federal Government Saving Bonds new issuances in its daily official list in the first seven month of 2018.
Federal Government of Nigeria (FGN) Savings Bond is a retail investment instrument introduced by the Federal Government of Nigeria to promote the savings culture in Nigeria while giving retail investors the opportunity to earn income from a secure investment. The FGN Savings Bond is issued by the Debt Management Office.
Until now, only big investors and companies could afford to purchase FGN Bonds. This is because of the minimum purchase value. The FGN Bonds have been the primary investment option of Pension companies as the investment is risk free.
The federal government saving bond is issued monthly in tenors of two and three years. The bonds are issued to assist the government finance its budget deficit, it also helps in promoting savings culture and enhancing financial inclusion in the country as income earned from it is exempted from taxes. The FGN Savings Bond guarantees quarterly interest payments and repayment of the principal at maturity.
The Nigerian capital market has struggled in the first eight months of the year as the Nigerian equities market has posted a year-to-date loss of 11 per cent as at September 7, 2018, while the fixed income market has equally performed significantly bearish with yields on long dated securities in the debt space currently trending as 13 month high having breached the resistance point of 15 percent on August 30, 2018.
Stocks market analysts attributed the bearish activities to Nigeria is in an eve of election’s year. Also central to it is the normalization of interest rates by the developed markets especially the United States (US). This has resulted to offshore investors pulling out their funds from markets prone to structural challenges to better secured markets.
In the midst of this, an amount of N1.7 billion FGN Savings Bond was raised and listed on the NSE as at August 1, 2018.
Speaking on this, the managing director of HighCap Securities Limited, Mr. David Adonri said that the issuance of bonds, no doubt, will bring both local and foreign investors into the market and will step up government’s efforts to raise the funds needed for infrastructure development, among other projects.
According to him, with government’s economic reforms, prospects were high for the sustained development of the Nigerian bond market, as a tool for deepening the domestic capital market.
He however noted that the performance of the bond market has been shaped by recent happenings in the domestic and global market space.
“On the global front, the key factors are the recent rate hike by the U.S. Fed, which has further strengthened the dollar and stoked capital flow reversal from emerging markets.
“On the domestic front, the current federal government’s debt strategy, which is tilted towards reducing the proportion of domestic borrowings in favor of foreign debt sources, as well as falling headline inflation, has shaped investors’ decisions,” he noted.
The director-general of the Debt Management Office (DMO), Ms. Patience Oniha, recently said government would be listing some of the securities that were issued in the international capital market, adding that government recognised the role of the capital market in developing the economy.
She stated that funding the budget deficit and refinancing the inherited debt portfolio have been the key drivers behind the capital raising plans and will lead to significant benefits, particularly a reduction in cost of funds, noting that the diaspora bond provided an opportunity for Nigerians overseas to contribute to the development of the nation.
She said that funds raised would be applied towards developing key infrastructure, with proceeds to be used for budgeted capital expenditure, as well as support the drive towards economic diversification.