This is to inform you that the Federal Government of Nigeria via its Debt Management Office (DMO) will again offer FGN Savings Bond(s) for the month of May-2017 to open on the 8th May’2017 and close on the 12th May’2017 with settlement on the 17th May’ 2017.
We use this timely opportunity to improve Your knowledge of FGN Savings Bonds and how to use it to improve the risk profile and real return of Your investment portfolios. Kindly read through the attachments for more details & information.
How To Improve Your Portfolio With Savings Bonds?
FGN Savings Bonds are considered ‘passive investment’ strategy to ensure capital preservation with low risk. Most investors on the NGSE simply buy equities but these have very high risk profile. In order for investors to reduce and stabilize their portfolios’ risk profile, they can apply the following simple portfolio reallocation strategy used by fund managers of most local pension, mutual funds & insurance companies:
- Take note of Your age, for example, let’s say the investor is 45 yrs in 2017;
- Let’s accept that the investor can live a 100-years life scan;
- Thus, for this investor, according to the portfolio reallocation strategy – the investor should have a 45% equity allocation and a 55% FGN savings bond allocation within his/her portfolio.
In the current bearish financial environment, to improve annual real return (incl. inflation) and risk profile on investment –we strongly recommend re-allocation & re-investment of part of client’s equities into saving bonds.
The Nigerian Stock Exchange will serve as the active secondary market for the FGN Savings Bonds, thereby providing liquidity to retail subscribers who wish to redeem their capital before maturity.
The Key Features of FGN Savings Bond(s) are as follows:
– Auction date: Auctions will be initiated on the 1st Monday of every month;
– Coupons: The coupon rates will be announced by the DMO before each issuance;
– Coupon payments: Quarterly (interest payments 4x in a year);
– Tenor: 2 – 3 years;
– Transaction sizes: Minimum subscriptions of NGN 5,000 with additional multiples of NGN 1,000 and maximum subscriptions of NGN 50,000,000.
The Key Benefits of FGN Savings Bond(s) are:
– Capital safety: Investments are backed by the Federal Government of Nigeria, and so can be referred to as ‘risk-free’;
– Projected Coupon (Interest) Rate: Expect a comparatively & relatively attractive coupon rate within the range of 12% – 14% p.a for 2 – 3 yrs tenor FGN Savings Bonds, when compared to av. interest rate on savings deposits in local commercial banks of about 30% of MPR or 4.2% p.a. Thus, a premium difference of 8 – 10% p.a (per annum);
– Tax free income: Income (quarterly interest payments) is tax-free;
– Investment returns: Potential for capital gain and ensured regular quarterly payments of interest on invested capital. Thus, ensuring protection from a bearish trend on the stock market and capital preservation.
Prognosis For The Coming May-2017 FGN Savings Bonds Primary Auction:
Clients’ feedbacks indicate that they are used to investing in FGN Treasury Bills (T-bills) via their respective commercial banks. They believe that they earn more investing in FGN T-bills but they forget that commercial banks must take their own profit/discount of approx. 1-2% deducted from the final primary auction coupon rate.
We hold otherwise as the NGSE provides You all with the ability to buy & sell equities and bonds on the same platform for a min. N5,000 saving unnecessary bank transfer charges and transaction documentations. As for the claim that FGN T-bills provide higher coupons than FGN S-bonds, check the following coupon comparative analysis :
FGS2019S1 – FGN S-Bond “13.01% of Mar-2019”
FGS2019S2 – FGN S-Bond “12.794% of April-2019”
FGS2020S3 – FGN S-Bond “13.794% of April-2020”
N.B: FGN S-bonds can be compared to 91-day FGN T-bills because both have a similar quarterly (3-month) interest payment schedule.
Av. 91-day NTB (FGN T-bills) yield was 14.08% in Mar-2017, down from 14.23% in Feb-2017. The forecasted average for April-2017 & May-2017 are 14.03% and 13.63% respectively according to FSDH Merchant Bank. In the 3rd wk-April-2017 primary auction, CBN sold =N=12.3bln of 91-day NTB at 13.6% compared to DMO’s 12.8% – 13.8% on FGSxxxxSx => 3-yr tenor FGN S-Bond due April-2020 @ 13.794% (FGS2020S3) seems to be the best deal as it was offered at a higher coupon.
TRW Stockbroker Investment Recommendation:
Under the current bearish Nigerian stock market environment, we kindly advise clients to sell down their equity positions and re-allocate/re-invest in primary auction bids for FGN Saving Bonds in May-2017 and if successful, we recommend to investors to hold till maturity.
Caution – Selling on the secondary market before maturity, can either incur capital loss or capital gain.
At the moment, buying from the secondary market looks expensive with market price for the tradable FGN S-Bonds “13.01% Of Mar-2019” (FGS2019S1) still at N1,000.00. Our in-house target ’dirty’ price for FGS2019S1 is N925.90.
TRW Stockbroker Transaction Fee Policy:
Secondary market fixed income trades on the bond segment of the NGSE via ‘TRW E-Trader’ Trading Platform is subject to the following fee terms:
– Primary Auction: There are no charges for purchases made through the DMO primary auction.
– Secondary Market: A transaction fee of 1% of total consideration will be charged for additional NGSE Buy / Sell transaction(s) while CSCS will charge 0.0001%;
Should you require further information, please contact us via the following channels. We will attend to it promptly.
Phone: during working hours, Monday through Friday on the following lines: +234-17646689, +234-1-2710224, 0805-810-4210 (24 hours ), 0803-716-1440 (24 hours), 0805-6172779 (24 hours),
Corporate Office: 62/64 Campbell Street (Kajola House) 4th & 5th Floor, Lagos Island, Lagos State – NIGERIA…
Corporate Office: 62/64 Campbell Street (Kajola House)
4th Floor Lagos Island Lagos .