The Federal Government of Nigeria Savings Bonds (FGNSB) are becoming attractive to retail investors going by the interest rates offered on the security in November.
The interest rates of 13.4 per cent and 12.4 per cent for the 3-year FGNSB and 2-year FGNSB respectively are the highest since October 2017.
Analysts have said the rates are attractive to retail investors compared with the alternative returns from savings accounts offered by Nigerian banks.
“The current interest rates on the FGNSB are also higher than the current inflation rate of 11. 26 per cent (October2018 figure), which means that the real interest rates on the FGNSB are positive. Consequently, retail investors should position for the December 2018 FGNSB auction, which should be open for subscription on Monday, 03 December 2018,” analysts at FSDH Research said.
According to the firm, given the current interest rate movements in the country, FSDH Research expects the interest rates on the December FGNSB auction to inch up marginally from the levels recorded in November 2018.
The Debt Management Office (DMO) introduced the FGNSB in March 2017 to provide an avenue for low-income earners to earn consistently good returns over time. The security has some benefits, which include the provision of an investment opportunity, offering attractive returns with low investment risk.
The FGNSB is an initiative of the federal government to encourage a culture of national saving among low-income earners. The FGNSB also helps to diversify the funding sources of the government.
As at June 2018, the FGNSB contributed N8.52bn to the total domestic debt of N12.15trn. The FGNSB currently offers tenors of two years and three years. The interest rate on the three-year tenor is higher than the two-year tenor. The average interest rate on the two-year tenor between March 2017 and November 2018 was11.79 per cent.
The average interest rate on the three-year tenor between April 2017(when it was introduced) and November 2018 was 12.73 per cent. The FGN pays the interest on the Bonds on a quarterly basis.
As a result, the FGNSB is a more attractive investment option than a savings account as it is exempt from all forms of tax and offers a higher interest rate than a savings account.
“An additional benefit of the FGNSB is its relative liquidity as investors can trade the Bonds on The Nigerian Stock Exchange (NSE) if they wish to sell before maturity. Our findings show that the volume of FGNSB available for trading at the NSE is small.
“Therefore, stockbrokers and the DMO need to do more sensitisation programs than are currently being done to create an active secondary market for investors to trade their bonds. Also, an investment in the FGNSB may be used as collateral to borrow money in any financial institution in Nigeria,” FSDH Research stated.