Investing in FGN bonds Simplified

A market directive by the Debt Management Office (DMO) effective March 7, 2017, has raised the minimum subscription for FGN Bonds through the primary market from N10,000 to N50 million naira. A new series of bonds called FGN Savings Bonds were introduced to cater to the category of investors who do not have enough funds to access the FGN Bonds primary market.

This article addresses investing in FGN Bonds through the primary market. This means if you have less than N50Million, you can only invest in FGN bonds through the secondary market or FGN Savings Bonds through the primary market (direct auction)

• FGN bonds are debt instruments issued through the debt management office to raise funds for the Federal Government and have tenors of 5 years, 10 years, and 20 years.
• During the tenor, you will be paid interest every six months (paid into the account you indicated).
• FGN bonds are sold in monthly auctions (primary auctions). The primary auction usually holds on the 3rd Wednesday of every month. Sometimes, that may change. If you read the financial section of newspapers (which you should read, if you are serious about your finances), you will read about upcoming bond auctions and how much the CDN intends to raise.
• The interest rate usually changes, based on the result of the auction, hence it is not fixed.
• After each auction, the marginal (average) rate is determined. Bids below the marginal rates are allocated at the rate you bid while bids above the marginal rate are not allocated. This means if your bid rate is too high, you may not get an allocation. You may then have to buy from the secondary market (from folks who won and want to sell).
• To find out what the current rate is, visit the CBN web page – www.cenbank.org/rates/govtsecurities.asp and look for the marginal rate.
• It is your decision what rate to bid at the primary auction. You can look at the results of the last primary auction and determine what rate to bid. If you are current with financial news, you will know the trend and bid accordingly. If you find it difficult to decide the rate to bid, you can go with the house rate. Ask your broker what rate they are bidding, and go with it also.
• You cannot bid directly at the primary auction. You have to go through a licensed Primary Dealer and Market Maker (PDMM).
• PDMMs are licensed by the Debt Management Office. You can access the current list here – http://www.dmo.gov.ng/pdmmlist.php. You may have to download the file to view it. With effect from April 1, 2014, the list of Primary Dealer Market Makers in Federal Government of Nigeria Bonds licensed by the Debt Management Office is as follows:

1. Access Bank Plc
2. Associated Discount House Ltd
3. Citibank Nigeria Ltd
4. Ecobank Nigeria Ltd
5. First Bank of Nigeria Plc
6. First City Monument Bank Plc
7. FSDH Merchant Bank Ltd
8. Guaranty Trust Bank Plc
9. Kakawa Discount House Ltd
10. Stanbic IBTC Bank Plc
11. Standard Chartered Bank Nigeria Ltd
12. United Bank for Africa Plc
13. Zenith Bank Plc.

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How do you go about Investing in FGN bonds?

• Make up your mind you want to start investing in FGN bonds
• Locate a broker. If it is a bank, talk to someone who can direct you to the right person to deal with.
• The minimum um required is N10,000 and then multiples of N1,000. That means they will not accept N20,500. It has to be in thousands.
• Some brokers may demand a higher minimum (for administrative convenience). You have 2 options – save up to the amount they are demanding or look for another broker that accepts a lower minimum you can afford.
• You will be given forms to fill out. Fill it. You may need to open an account with the broker. Open it. You will need a CSCS account if you want your bond to be listed on the Nigerian Stock Exchange. This gives you more flexibility if you want to sell before tenor expiration. None of this process involves money.
• The money you use in purchasing the bonds will be domiciled (kept) with a Custodian, not your broker. You will be charged a token (a fraction of a percent) by your broker for services rendered and Custodian fees. This is the only aspect that involves money.
• If you are bidding at the next primary auction, you will fill out a form for your bid. Provide the information requested.
• You will be required to transfer funds to the broker before the primary auction date.
• After the primary auction, you will be notified of the outcome, if you were successful or not.
• If you were successful, your investment will be booked and your letter sent to you.
• If you were unsuccessful (your bid rate was too high – i.e. above marginal rate), your money will be returned to your account with your broker. You can then decide what to do, either to wait for the next primary auction or buy from your broker. Brokers usually buy in bulk to resell/allocate to their money market funds).

Congratulations! You did it! You are now a creditor to the Federal Republic of Nigeria. The government owes you!

The next step is to continue building your portfolio till your interest starts to make sense.

Your investment in bonds can be used as collateral for accessing a loan facility from a lender (good debts I hope). The best way to start is to just do it. Start investing in FGN bonds, and as you go along, you become more experienced.

You can buy How to invest in FGN bonds here
If you have further questions or comments, please drop them below. I will respond as soon as I can.

Money market investments, bonds, compound interest, asset allocation, investing in stocks, etc will be discussed in greater detail. Change must come to your finances also. Ciao