DMO announces December 2022 FGN Savings bond details
The Debt Management Office (DMO), on behalf of the Federal Government, has announced the offer for a subscription to the December 2022 Federal Government Savings Bond.
A circular issued by the DMO and seen by Nairametrics reveals two tranches of issuances — 2-year and 3-year savings bonds, with interest rates of 12.25% and 13.25%, respectively.
This shows that the interest rates decreased from 12.492% and 13.492% in November for the 2-year and 3-year Savings Bonds respectively.
Interest rate drop: The latest FGN Savings Bond yield fell slightly when compared to the same period last month suggesting that the DMO may be reacting to an increase in demand for the bond.
- This is on the back of a recent rate hike by the central bank to 16.5% in a bid to tame the surge inflation rate, which rose to about 21% in October 2022.
- Following the MPR rate hike, savings bond rates have also been rising to reflect the changes in the benchmark rate.
- Between May and November, the interest rate for the 2-year FGN savings bond has moved from 7.934% to 12.492% per annum, while the 3-year bond has seen its rate increase from 8.934% to 13.492% in the same period.
Why did the rate drop? We believe the slight drop in yields is likely due to an increase in demand for fixed-income securities especially those that are risk-free such as the FGN Bonds.
News continues after this ad
- Investors appear to be taking advantage of higher yields in the fixed-income market when compared to other investment options.
- The CBN also alluded to this in its last monetary policy communique claiming that the bad performance of the All Share Index in October was also because “investors are taking advantage of higher yields in the fixed income market” when compared to other investment outlets.
- We also see a similar trend with Nigeria’s Eurobond yields which also fell as bond prices rose.
Key details to note: The opening date for subscription was December 5th, 2022 and the closing date is December 7th, 2022.
- The settlement date is December 14th, 2022, and coupon payment dates will be March 14, June 14, September 14, December 14
- Unit of sale: N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50,000,000.
Is this a buy or bounce? An interest rate of 12-13% for the one to two-year savings bond is still below the inflation rate, however, it is still much higher than what was obtainable earlier in the year.
- Retail investors with naira savings should consider investing in FGN Bonds since they are risk-free and coupons are also paid twice a year.
- There are next to zero alternatives out there that offer a higher interest rate than the FGN Savings bonds that do not include a high level of risk.
- Opportunities like this may also not be available again as yields may drop further if the central bank continues with the push to reign in on money supply.
But…we also know that the frequent exchange rate volatility is a major disincentive for naira investments.
News continues after this ad
- Some investors have stopped investing in naira-denominated assets because of the risk of value accretion.
- However, we do note that most people still have naira commitments, and having a diverse portfolio of assets is ultimately better.
- Also important to note that income from FGN Savings is tax-free.