As we come to the end of the current short-term equity bear market rally in the 2Q2020 as cases of coronavirus pass 5,000 persons in Nigeria, common sense indicates that wealth preservation (in the form of savings/cash investment) should continue to be the better long-term investment strategy within a global deflationary environment as money market remains bullish (offers for 91-day FGN bills remains <0.5% p.a in the FMDQ secondary market). We continue to recommend FGN Treasury, Savings & Infrastructure (Sukuk/Green) Bonds on the NGSE/FMDQ exchanges as a safer alternative fixed income (savings) option which can provide local non-commercial banking investors higher yields than FGN T-bills, though the high inflation creates a negative real rate of return – this is a sacrifice to ensure wealth preservation.
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 bullish since 4Q2019 as average bond rate stabilizes between 10% – 11% p.a. We will try to execute clients’ purchase/sales order mandates on FGN bonds at near the last ‘end of week’ market rates as shown below:
Bond Tenor (Years) Current Market Yield (%) Q’ty In W/H (=N= in MLN)
2021 1 5.21
2022 2 6.39
2023 3 9.17
2024 4 9.61
2025 5 10.13
2026 6 10.55
2027 7 10.97
2028 8 11.04
2029 9 11.14
2030 10 11.25
2034 14 11.61
2036 16 11.63
2037 17 11.55
2049 29 12.54
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 >12.5% 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 ? – 2.5% 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: Suspension (partial close to new margin loans, but margin trading continues)
Marginable Equity Securities: JBERGER
ARMF Bond portfolio re-opens its sourcing for funds upto N5BLN (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) is 30% p.a from 1st January-2020 till further notice.
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:
TRW Stockbrokers Limited
Corporate Office: 62/64 Campbell Street (Kajola House)
4th Floor Lagos Island Lagos .