The Federal Government has commenced the auction of its savings bond for July this year. A savings bond is targeted at low-income earners to encourage them to save and earn more income (interest) when compared with their savings account with banks. Savings bonds are tax-free with competitive fixed interest rates to be paid every quarter, and are tradeable on the Nigerian Stock Exchange. They can be used as collateral for loans.
The FGN Savings Bond auction, according to the Debt Management Office, commenced on July 1 and will close on July 5. The DMO said the two-year FGN Savings Bond was offered at 11.195 per cent per annum and would be due on July 10, 2021, while the three-year FGN Savings Bond was offered at 12.195 per cent per annum and would be due on July 10, 2022.
It said the bonds were offered at 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 N50m. The debt office said, “The bond qualifies as securities in which trustees can invest under the Trustee Investment Act. It also qualifies as government securities within the meaning of Company Income Tax Act and Personal Income Tax Act for tax exemption and pension funds, among other investors.
“Interested investors are advised to contact the stockbroking firms appointed as distribution agents by the DMO”. Last week, the bond market performance remained bullish as renewed buying interest was witnessed across the curve following the bond auction (1.7x oversubscribed), which held on Wednesday 26th of June 2019.
Consequently, average yield declined by 49 basis points week-on-week from 13.8 per cent the prior week to 13.2 per cent, with the 2020s and 2021s maturities enjoying the most buying interests. At the bond auction, the DMO offered a total of N100Bn across the five-year, 10-year and 30-year maturities, and significant demand was witnessed across all tenors as the offer was 1.7x oversubscribed.
Furthermore, the long-term offer enjoyed the most buying interest with a bid-to-cover ratio of 2.0x (N60.49Bn subscribed vs. N30Bn offered). Analysts at Afrinvest Securities Limited said they expected persistent buying interests within the bonds secondary market as investors seek to place their lost auction bids, further pressuring yields downwards.