The Federal Government of Nigeria, through its Debt Management Office (DMO), has opened the September 2024 subscription window for its Federal Government of Nigeria (FGN) savings bonds.
This comes as part of the government’s ongoing efforts to raise funds from the public to finance various national projects, offering a relatively secure investment option with attractive returns for Nigerians.
The subscription period for these bonds started on September 2nd and is set to last until September 6th, 2024. The bonds on offer include a two-year savings bond maturing on September 11, 2026, with an interest rate of 17.202%, and a three-year savings bond with an interest rate of 18.202%. This represents a significant increase compared to the rates offered in the same period last year, highlighting the growing appeal of these securities in the current economic environment.
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Each bond unit is priced at N1,000, and investors can subscribe with a minimum of N5,000, increasing in multiples of N1,000 up to a maximum of N50,000,000. Interest payments on these bonds will be made quarterly, with the first payment scheduled for December 11, 2024. The bonds will be settled on September 11, 2024, marking the start of the interest payment period.
Why the High Interest Rate?
The interest rates on these bonds are among the highest in recent memory, reflecting the broader economic conditions in Nigeria, particularly the high-interest rate environment. This surge in rates can be traced back to the Central Bank of Nigeria (CBN), which has been aggressively raising interest rates since February 2024. These actions are part of a broader strategy to curb inflation and stabilize the foreign exchange market by attracting foreign capital investments.
Over the past four Monetary Policy Committee (MPC) meetings, the CBN has increased interest rates by a total of 800 basis points. This has not only made government securities like the FGN savings bonds more attractive but has also driven significant investor interest in these offerings.
The result is a competitive yield environment, where the government can secure substantial funds at relatively high interest rates, reflecting the demand for these safer investment vehicles.
August 2024 Bond Auction Results
The attractiveness of FGN bonds was further underscored by the results of the August 2024 bond auction. The Federal Government successfully raised N374.751 billion, indicating strong investor confidence in long-term securities. The auction included tenors of five, seven, and nine years, with the nine-year bond standing out as the most popular among investors.
The nine-year bond attracted a massive subscription of N375.083 billion, far exceeding the initial offer of N50 billion, which led to an allocation of N314.213 billion at a marginal rate of 21.50%. This oversubscription, at 650.17%, demonstrates the high level of interest and confidence in Nigeria’s longer-term debt instruments.
Implications for Investors
For investors, the current FGN savings bonds offer an opportunity to earn significant returns in a relatively low-risk environment, backed by the full faith and credit of the Nigerian government. The high interest rates reflect the government’s need to attract sufficient capital in a challenging economic climate marked by inflationary pressures and currency depreciation.
The steady and predictable income from the quarterly interest payments makes these bonds attractive to those looking for stable, long-term investment options. Moreover, the government’s track record of successfully raising funds through bond auctions further solidifies the security of these investments.
With Nigeria’s continued grappling with economic challenges, including inflation and currency depreciation, the attractiveness of government bonds as an investment vehicle is likely to remain strong. The continued rise in interest rates, driven by the CBN’s monetary policies, suggests that future bond offerings may continue to offer high yields, providing lucrative opportunities for investors while helping the government secure much-needed funding for national development projects.