There may be a short-term equity bear market rally in the coming trading weeks even with coronavirus already here in Nigeria but common sense indicates that savings (a form of cash investment) is the better investment strategy at the moment as money market remains bullish (91-day FGN bills remains <2% p.a in the secondary market). Investors continue to resist these low yields even as the sell-off in the equity market continues – CASH IS KING => KING DOLLAR, not NAIRA. The ”MMM” effect has taken hold the populace with wonder banks promising impossible high returns and SEC seriously after them to reduce naïve investors’ capital losses.
We continue to recommend FGN Treasury, Savings & Infrastructure (Sukuk/Green) Bonds on the NGSE/FMDQ exchanges as a safer alternative fixed income (savings) option that can provide local non-commercial banking investors higher yields than FGN T-bills.
N.B: Your fixed e-savings account on the NGSE is actually Your CSCS Account which is directly connected to CBN S4 Platform (for safe-keeping & custody).
The bond market remains slightly bullish since 4Q2019 as rates stabilize. We will try to execute clients’ purchase/sales order mandates on FGN bonds at near the last e-o-wk (end of week) market rates as shown below:
Bond Tenor (Years) Current Market Yield (%) Q’ty In W/H (=N= in MLN)
2021 1 6.30
2022 2 7.57
2023 3 10.55
2024 4 11.16
2025 5 11.76
2026 6 12.24
2027 7 12.75
2028 8 12.90
2029 9 12.95
2030 10 13.02
2034 14 13.23
2036 16 12.98
2037 17 12.98
2049 29 13.01
N.B: A Typical FGN Savings Bond is a ”revolving” 90-day FGN Treasury Bill.
Standard fixed e-savings acct opening starts at min. N10,000 where your CSCS acct acts as your e-custodian & e-savings account within the CBN S4 platform. Under the savings product – Upfront Interest Savings Scheme which starts at min. savings order of N100,000.00 – only FGN bonds with coupon >12.3% p.a (higher than the current inflation rate) qualify to be allocated to bond clients.
- What is the effective yield of a FGN bond under the upfront interest savings scheme? – it is calculated by deducting the sum of transaction charges and/or upfront funding expenses from the total yield till maturity (excl. compounding opportunity) and divided by the holding period, for example, purchased at ‘par’ NIGTB 14.2% 14-MAR-2024 (FG112024S1) and held for 5-yrs to maturity => estimated effective yield of 12.6% p.a
- What is the current 91-day FGN T-bill PMA rate ? – 2.3% p.a
- What is the current commercial banks av. savings deposit rate according to CBN ? – 3.89% p.a
- What will be the increment to the bond’s effective rate under the upfront interest savings scheme if the quarterly upfront interest(s) were compounded (re-invested) in 12-month TTM FGN bonds with coupon >7% for example? – we estimate an increment of 0.583% p.a on the respective FGN bonds’ effective rate. Thus, compounding is an investment strategy that should never be ignored !!!
- Must i have a CSCS trading acct with TRW Stockbrokers Limited to participate? – YES !!!
ARMF Bond Portfolio has opened a new sub-product called ”collaterized security margin trading” which is accessible only to bond investors under the Upfront Interest Savings Scheme starting from a min. fixed savings of N1MLN @ margin loan rate of 0.0822% per day (pro rata).
Thus, savers can now leverage on their bonds (fixed e-savings) under the upfront interest savings scheme to obtain fresh cash to invest on the NGSE equity market. A N1MLN fixed e-savings will gain access to an equivalent N1MLN margin loan => N2MLN margin account => leverage ratio (asset/equity) of 200% (2:1).
Margin Loan Window: Open
Marginable Equity Securities: AIICO, UCAP, SEPLAT
ARMF Bond portfolio re-opens its sourcing for funds upto N500MLN (buy-side investors) to be used for the following:
- to finance upfront quarterly interest payments to bond savers under the upfront interest savings scheme;
- to finance collaterized margin loans to bond savers who want to leverage on their bonds (fixed e-savings) under the upfront interest savings scheme in order to obtain fresh cash to invest on the NGSE equity market;
- participation starts from min. N50MLN at a ”negotiated” annual fixed interest rate for a 12-month revolving holding period.
ARMF Bond Portfolio upfront funding & margin loan rate(s) were reduced from 40% p.a to 30% p.a starting 1st January-2020 due to the local falling lending rate environment.
Caution – selling bonds on the secondary bond market before maturity, can either incur capital loss or capital gain !!!!
Should you require further information on how to get the best (and/or highest) annual interest on Your savings, please contact directly:
Contact Person: Ekwueme Mike Anyadibe
E-mail: email@example.com or firstname.lastname@example.org
Skype #ID: respartner
TRW Stockbrokers Limited
Corporate Office: 62/64 Campbell Street (Kajola House)
4th Floor Lagos Island Lagos .