The Nigerian Stock Exchange (NSE) has admitted about N1.023 billion worth of investment of FGN Savings bond on its platform in the first three months of this year.
The FGN Savings Bonds was designed to offer attractive returns and low risk investment avenue to low income earners. It was also aimed at deepening the national savings culture and provide opportunity to all citizens irrespective of income level to contribute to national development.
Though it started off in March 2017, with two-year tenor, the Debt Management Office (DMO), since April 2017, has been issuing two tenors of the bond, 2-year and 3-year, on a monthly basis, at average interest rate (coupon) of 13.01 percent and 14.01 percent respectively. However, the rate has fallen to 11.62 percent and 12.62 percent respectively.
Detail of the bond as contained in the NSE X-Compliance report revealed that, while the two-year Savings Bond attracted N206.557 million proceeds at the end of March 2019, the three-year tenor Savings Bond in subscription value in the first quarter (Q1) 2019, stood at N816.482 million.
Stakeholders noted that the FGN savings bond has not attracted expected investments, indicating local investor apathy, a similar trend also noticeable at the equities market.
Speaking recently, the director-general of the Debt Management Office (DMO), Patience Oniha, said N10.5 billion has been made from the bonds while 13, 200 retail investors have so far invested in the fixed income instrument.
She said that despite huge money spent on television and radio advertisements for awareness, the level of patronage has been far below expectation, but expressed hope that more investors would take advantage of the securities to make money.
Oniha recalled investor apathy that trailed the capital market since after the 2008 market crash, adding that there was a lot that needed to be done to attract local retail investors back to the market.
“Financial inclusion requires a lot of investor education, technology and financial literacy. We are looking to take some cues from some of the technologies deployed in Kenya where people can invest in the capital market through the use of mobile phones. The DMO will be glad to deploy that,” Oniha stated.
“There was a need to build investors’ confidence in the market by being transparent and improving corporate governance. We also need to do a lot in terms of investor education using the media and other platforms. Any firm interested in collaborating with us to drive this goal is welcome,” she said.
Independent equities analysts at Tradelines, Tunde Jeariogbe said that “The monetary policy committee (MPC), at the end of its March 25th and 26th, 2019 meeting voted to cut the key benchmark interest rate by 0.50 per cent , the move which brings the current lending and deposit rate to 15.50 per cent and 8.50 per cent respectively.
“While justifying the cut, the committee expressed satisfaction with the relative stability in the price level and exchange rate, and thus, claimed the decision is sought to support growth.”
He noted that despite MPR staying unchanged over the past two years, the Deposit Money Banks (DMBs) had consistently re-priced loan rates by the prevailing fixed income yields.
He opined that the 0.50 per cent slash to the average prime lending rate might be insignificant, saying that for MPR to drive growth as anticipated by the MPC, there might be need to consider further lowering of the open market operations (OMO) rates which will transmit into effective yields on other treasury assets.
According to Jeariogbe, for the MPC to follow through on its mandate of encouraging growth, the possibility of a further cut in the near term and a faster cut in subsequent OMO rates cannot be completely overruled.
However, he expected effective yield on OMO to bottom out at 14.20 per cent, with a stop rate of approximately 12.40 per cent for the one year OMO bill, this is premised on the fact that, further reduction to OMO rates might be unattractive for foreign investors. Especially when the inflation differentials between Nigeria and US, credit default swap as well as alternative US return forgone is put into consideration.
On the strength of the above, he noted current yields, as seen in the April FGN Bond Savings offer rate will not be enough to induce reinvestment of maturing funds, that is, patronage might be on the downside, saying that this will induce further adjustment to the OMO rate in the near future.
On the low participation, managing director/chief executive, Cowry Asset Management, Mr. Johnson Chukwu, however, cited the economic situation of the low income earners, who are the target of the Savings Bond, as the major factor undermining investment in the Bond.
He said, “What happened when the bond was introduced in March 2017 was that this class of investors moved their savings from banks into the Savings Bond. This accounted for the huge response to the first offer. However, their economic condition is yet to improve for them to generate new savings and thus invest more in the Savings Bond.”
He also blamed this on limited information on how to trade the product either as traders or investors as well as the structure of the instrument not structured as a regular bond, which makes the pricing slightly opaque.
Managing director/CEO, Sofunix Investment & Communications, Mr. Sola Oni said, “We must appreciate that the philosophy of the FGN Savings Bond transcends the economics of capital mobilization. The bond offering is targeted at low income earners as a way of encouraging savings culture. At the commencement of the programme, there was intensive publicity and this enhanced patronage.”
He however, said such as uncompetitive yields, compared to other asset classes in fixed income securities became an obstacle. For instance, the yield on Treasury Bill became more profitable.
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