In an apparent move to attract more retail investors the Debt Management Office (DMO) has increased the coupon (interest) paid on the Federal Government of Nigeria (FGN) Savings Bond that opened for subscription on Monday.
The DMO introduced the FGN Savings Bond in March this year as part of efforts to deepen the national savings culture, provide opportunity to all citizens, irrespective of income level, to contribute to national development, enable all citizens participate in and benefits from favourable returns available in the capital market.
The first two-year savings bond was issued in March and due in March 2019 with coupon of 13.01 per cent. The second savings bond was issued in April with a coupon of 12.794 per cent.
However, THISDAY checks showed that the savings bonds for the month of May, which opened on Monday, have higher coupon rates. While the two-year bond is being offered at an interest of 13.189 per cent, the three-year bond is being sold at 14.189 per cent. The rates are higher than the 12.794 per cent and 13.794 per cent offered for two and three years bonds respectively in the April auction.
Although the FGN savings bond still have a lower yield compared to Treasury Bills, investment analysts said the interest rates are very attractive given the minimum amount (N5,000) required to buy the bonds.
â€œOne can say 14.189 per cent is still lower than 18.8 per cent that treasury bills were sold last week, but if you look at the minimum investment required to play in the treasury bills market and what an investor needs to buy savings bond, the interest on savings bond is a very attractive deal. You cannot get that kind of returns on savings accounts,â€ a market analyst said.
According to some market operators, the higher coupon being offered would attract more retail investors.
The Director General of DMO, Dr. Abraham Nwankwo had explained that the floating of FGN Savings Bond was to encourage the public, especially low income earners to save, invest and earn commensurate returns from their investments.
Nwankwo noted that the new instrument was part of the strategic plans for 2013-2017 with the objective to deepen and broaden federal governmentâ€™s securities market in order to sustain the development of other segments of the bond market.
The savings bond has the following benefits: It offers guaranteed returns, and encourages financial inclusion among low income households; it enables individuals to enjoy those benefits which accrue to high net-worth investors in the capital market; it has a competitive fixed rate â€“ interest rate; the interest incomes earned from the securities are tax exempt; and the FGN savings bond certificate can be used as collateral for loan.