FG cuts sav­ings bond rates to record low on strong re­tail ap­petite


The Fed­eral Govern­ment of Nige­ria has cut the in­ter­est rates on its sav­ings bonds to the low­est levels on record to take ad­van­tage of strong in­vestor ap­petite amid neg­a­tive real re­turns on its short-term debt se­cu­ri­ties to bor­row cheaper.

The in­ter­est rates on the twoyear and three-year FGN sav­ings bonds were low­ered to 9.091 per­cent and 10.091 per­cent per an­num, re­spec­tively, ac­cord­ing to a no­tice for De­cem­ber auc­tion re­leased Mon­day by the Debt Man­age­ment Of­fice (DMO).

These rates are the low­est since March 2017 when the

DMO, which is of­fer­ing the re­tail prod­uct on be­half of the FGN, con­ducted its maiden sav­ings bond auc­tion. “The al­ter­na­tive to sav­ings bond for re­tail in­vestors is trea­sury bills which are cur­rently at low-yield levels,” Omo­tola Abim­bola, a mi­cro and fixed­in­come an­a­lyst at La­gos-based Chapel Hill Den­ham said. He noted that “the DMO had to re-price the sav­ings bonds lower to re­duce the cost of bor­row­ing for the Fed­eral Govern­ment” fol­low­ing a “healthy re­tail par­tic­i­pa­tion”. The Fed­eral Govern­ment’s plans to cut its bor­row­ing cost and ramp up its rev­enue col­lec­tion have led the CBN to re­strict par­tic­i­pa­tion in its Open Mar­ket Op­er­a­tions (OMO) to for­eign in­vestors and lo­cal banks, a move that left in­di­vid­ual and non-bank lo­cal cor­po­rate in­vestors search­ing for al­ter­na­tive in­vestable op­tions to rein­vest pro­ceeds of OMO ma­tu­ri­ties. Con­se­quently, in­vestors ro­tated into trea­sury-bills mar­ket, forc­ing in­ter­est rates on T-bills at the last auc­tion to crash to 6.495 per­cent, 7.23 per­cent, and 8.37 per­cent on the 91-day, 182-day and 364day pa­pers, re­spec­tively, the low­est since Jan­uary 6, 2016. The av­er­age dis­count rate on the bills at the se­condary mar­ket also de­clined to 6.86 per­cent last week from 12.25 per­cent a month ear­lier. Similarly, rates on FGN sav­ings bonds trad­ing at the FMDQ have de­clined within the past month. For in­stance, the yield on 13-DEC-2019 ma­tu­rity fell to 5.99 per­cent on Novem­ber 29 from 12.39 per­cent at the close of busi­ness on Septem­ber 20, while the yield on 16-AUG-2022 ma­tu­rity de­clined to 11.58 per­cent from 14.23 per­cent within the same pe­riod. “What we do with those bonds is pric­ing,” Pa­tience Oniha, di­rec­tor-gen­eral of DMO, had said while ex­plain­ing the ra­tio­nale be­hind changes in auc­tion rates in an exclusive chat with Busi­ness­Day. “We look at what our bench­mark bonds are trad­ing at FMDQ, and we ap­ply that.” The state-funded debt agency said the sub­scrip­tion of the sav­ings bonds, which com­mence­don­mon­day,de­cem­ber 2, is ex­pected to end on Fri­day, De­cem­ber 6 with a set­tle­ment date of De­cem­ber 11, 2019. Fur­ther­more, the DMO noted that the two-year tenor will be due on De­cem­ber 11, 2021, while the three-year sav­ings bond will ma­ture on De­cem­ber 11, 2022. Also, in­ter­est pay­ment on the in­stru­ments will be made ev­ery quar­ter on March 11, June 11, Septem­ber 11, and De­cem­ber 11. The bonds are of­fered at N1,000 per unit sub­ject to a min­i­mum sub­scrip­tion of N5,000 and in mul­ti­ples of N1,000 there­after. But that’s limited to a max­i­mum sub­scrip­tion of N50 mil­lion. The DMO as­sured that the bonds are backed by the full faith and credit of the Fed­eral Govern­ment of Nige­ria and charged upon the gen­eral as­sets of the coun­try, im­ply­ing there is no risk of de­fault. How­ever, the debt agency said those in­vestors who do not wish to hold on to the se­cu­ri­ties till the ma­tu­rity date can trade their in­vest­ments at the se­condary mar­ket as the se­cu­ri­ties will be listed on the Nige­rian Stock Ex­change. The DMO noted that the bond qual­i­fies as se­cu­ri­ties in which trus­tees can in­vest un­der the trustee in­vest­ment act; govern­ment se­cu­ri­ties within the mean­ing of Com­pany In­come Tax Act and Per­sonal In­come Tax Act for tax ex­emp­tion for pen­sion funds, amongst other in­vestors; and as a liq­uid as­set for liq­uid­ity ra­tio cal­cu­la­tion for banks.

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