DMO Issues N835 Billion Bonds


Dr. Abraham NwankwoThe Debt Management Office (DMO) has issued a total of N835 billion bonds so far in 2013.
A breakdown of the amount of the fixed income securities sold by the debt office showed that while in the first quarter, a total of N285 billion bonds was offered to investors; N300 billion in the second quarter; and N195 billion in the third quarter. It,  however, revealed that in October, the DMO offered a total of N55 billion to investors.

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A report by the Afrinvest Securities Limited titled: “The Nigerian Bond Market,” showed that yields on the fixed income securities this year had averaged around 12.2 per cent, adding that all the bonds issued by the DMO this year were oversubscribed by about 113 per cent as domestic and foreign investors showed increased interest in the Nigerian sovereign instruments. This, it partly attributed to the high risk of return in other markets.

“Investors had revealed preference for bonds with active secondary market activity, in addition to longer term bonds with above market modified duration. This is justified by the downward outlook on rates as well as liquidity premium in the country’s over-the-counter (OTC) dominated secondary bond market.

“We expect the DMO to issue between N45.0billion and N80.0billion of instruments this month, to which we anticipate approximately 95 per cent oversubscription,” it added.
Generally, government bonds are considered risk free as it is believed that a sovereign is unlikely to default on its debt obligations.  Hence, the yield on 10-Year government bond is often used as the ‘risk free’ rate in most financial analysis.

However, the report stated: “Thus, beyond the 2009 fiscal crisis and debt re-negotiation that usually characterise extreme sovereign bankruptcy (as witnessed in Greece), the recent near default of the United States debt obligations calls for a rethink on what a risk free investment is or should be.

“In addition, indications that major global credit rating agencies might downgrade the US government bonds in the face of August 17, 2013 near default raised interesting questions as regards the ‘real safety’ in sovereign instruments; as well as the efficacy of holding government bonds as a means of de-risking portfolios.

“Nevertheless, it is valid that treasury backed instruments are relatively safe asset class compared to equities, currencies and derivatives. However, to the extent that a sovereign can potentially default, can we still retain “risk free” in investment lexicon?”

Babatunde Akinsola
Babatunde Akinsola
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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