Level of liquidity may be responsible for dwindling bonds subscription – DMO

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Abuja – Bonds auction results in the past few months for both the Federal Government Bonds and the Savings Bonds shows that the level of patronage has declined. Data obtained from the website of the Debt Management Office (DMO) on Sunday in Abuja, showed that in 2017, the Federal Government bonds had N2.37 trillion subscriptions with 1.49 trillion as offers and N1.55 trillion in allotments.

In 2018, subscriptions stood at N1.506 trillion and total allotments were N822.41 billion, while what was offered was N1.07 trillion.

For the savings bonds, in 2017, the Federal Government made N7.197 billion from 9,866 subscribers while in 2018, N2.533 billion was recorded from Jan. to Sept., with results for Oct., Nov. and Dec. absent. The Director-General, Ms Patience Oniha in an interview with the News Agency of Nigeria (NAN), said that the low level of liquidity available, especially in the case of the Federal Government bonds could be responsible.

She said that the product was targeted at institutional investors, though not deliberately because of the large volumes.

“When we are talking institutional investors, we are talking Deposit Money Banks (DMBs), Pension Fund Administrators (PFAs) and non-bank financial institutions so those are the people that buy that one.

“To invest in bonds, you need liquidity and you know that for the banks, monetary policy has been tight and I think that in some way, because of the monetary policy stance, the ability has somewhat been reduced.”

Oniha said that the DMO’s goal from 2009 was to diversify the bonds investment base.

According to her, before 2008, the banks took up about 64 to 65 per cent of the auction, but were presently taking much smaller because the PFAs, insurance companies and other institutions now participate in the market too. She, however, said it was a good thing.

“So, for those key investors, the decrease you think you are seeing in the level of subscription, and the inching up of the interest rates has to do largely with the level of liquidity in the system.”

She, however, dispelled any fears of foreign investors pulling out their investments because of the forthcoming general elections.

She said that they were more concerned about what was happening with interest rates globally, adding that foreign investors were only looking for opportunities where ever in the world was safe and returns were good to invest their monies.

“I believe that in May 2015 for instance, we actually had a higher level of subscription level from foreign investors.

“Looking at our strategy, generally, we are not looking at concentrating on one investor group which explains why we started diversifying to various other investors’ segment. “We are happy to have foreign investors but we also want to have more domestic investors participate in the market”, she said.

About the savings bonds, Oniha said that it was targeted at retail investors so they could also participate in the market. “From the very first month the subscription was good, I would not say very high if we look at our expectations.

“What has also happened is that for some, they are able to buy this month with the savings they have, and may not have built up enough the next month to invest in it again. “So the retail investor typically has to build up savings to be able to invest.”

Oniha said that the DMO had recorded successes on the product, adding that the number of retail investors had reached about 10,000 at the last count, while the number of first time investors had also increased.

She, however, said that the Federal Government would be glad to have larger volumes from investors, adding that sensitisation was ongoing to get people informed about the product.

NAN reports that the DMO introduced the savings bond into the domestic capital market in March 2017.

This was to provide an opportunity for retail investors to participate effectively in the domestic fixed income market and earn favourable returns, while contributing to national development.

The debut issuance of the savings bonds had 2,575 investors with total subscription and allotment of N2.068 billion. (NAN)

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