Heard of FGN Bonds? The Federal Government recently offered for subscription a two-year and three-year Savings Bonds to investors at 13.54 per cent and 14.54 per cent respectively. The Debt Management Office stated that the two-year bond would be due in August 2019, while the three-year bond had a maturity date of August 2020. The offer has a minimum subscription of N5,000, with increases thereafter in multiples of N1,000 up to a maximum subscription of N50m. According to the statement issued by DMO, the bond is backed by the full faith and credit of the Federal Government, with quarterly coupon payments to bondholders.
What is The FGN Bonds?
According to the DMO websites the FGN Bonds ‘’are debt securities (liabilities) of the Federal Government of Nigeria (FGN) issued by the Debt Management Office (DMO) for and on behalf of the Federal Government. The FGN has an obligation to pay the bondholder the principal and agreed interest as and when due. When you buy FGN Bonds, you are lending to the FGN for a specified period of time. The FGN Bonds are considered as the safest of all investments in domestic debt market because it is backed by the ‘full faith and credit’ of the Federal Government, and as such it is classified as a risk free debt instrument. They have no default risk, meaning that it is absolutely certain your interest and principal will be paid as and when due. The interest income earned from the securities are tax exempt.’’
Features of FGN Bonds
Denomination: minimum subscription of N10,000.00 + multiple of N1,000.00 thereafter.
Yield: – Interest payment
Fixed interest rates: Most of the bonds have fixed interest rates which are paid semi-annually.
Floating interest rates: Some FGN bonds (e.g. 3rd & 4th tranches of the 1st FGN bonds) have floating rates of interest which fluctuates around a reference rate(NTB rates) on the basis of specified parameters.
Tenor: Minimum of two (2) years. There are bonds with maturities of 3. 5, 7 and 10 years
Default Risk: FGN bonds as a sovereign debt are the safest investment instrument. Default risk is nil. The Government always pays what is due to subscribers on the agreed date.