By Temilade Adegunleyin
The value of transactions in Federal Government of Nigeria (FGN) bonds rose to N14trn in the first ten months of 2009, says Dr Abraham Nwankwo, Director General, Debit Management Office of Nigeria (DMO).
Speaking in Lagos on Wednesday, he said that from N10.09trn in 2008 value of transactions in FGN bonds, it rose to N14.68trn in the first ten months of 2009, whileÂ the number of transactions also rose from 80.135trn to 107.836trn.
Speaking at a workshop on The Nigerian Federal Government Bond Market: Safe Haven in Times of Crisis, organised by Primary Dealers Market Makers in Federal Government Of Nigeriaâ€™s Bonds, Nwankwo said that, â€œFrom 2003 till date the DMO offered FGN bonds worth N2.5trn, recorded a total subscription of N4.545trnÂ and allotted N2.522trn.
â€œThe bonds were issued in tenors of 3, 5, 7 and 10 years until November 2008 when a 20-year bond was issued. The significance is that investors have an appetite for bonds and tenors is not a deterrent.
â€œAnother landmark development in the financial market is that Nigeria now has a domestic sovereign yeild curve that extends to 20 years, thus, effectively providing a benchmark against which bonds issued by other entities and commercial banks credits can be priced.â€
Nwankwo said that the bond market is widely recognised as a major component of the financial market both for the diversity of products it offers the market and its contribution to growth and development.
The existence of a roboust bond market will contribute in no small measure to the attainment of the Financial System Strategy 2020 and Vision 2020.
â€œThe objective of restructuring the Federal Government of Nigeriaâ€™s treasury bill has been achieved as medium-to-long term debt instruments (FGN Bonds, Development Stock and Treasury Bonds) as at December 31, 2008 was N1848.38bn or 80 per cent of the total FGNâ€™s securities outstanding.â€
Among the other objectives of the DMO at the commencement of the resuscitation of the sovereign bond market were to develop a sovereign yield curve; create a more conducive environment for the operation of monetary policy; and perform a developmental role by providing a platform for the development of a large and robust domestic bond market where there are many bond issuers, a wide variety of bonds and a large number of investors and traders.
He noted that domestic bond market has evolved rapidly in the last 6 years and if the sovereign bond market had not been resuscitated in 2003 and sufficiently developed as at 2008, in the face of the global financial and economic crisis as well as the crisis in the Nigerian equities market, the down-spin in our stock market could have hit a deeper bottom; the quake and dislocation in the financial system could have been more traumatic; and, the deceleration of economic activities could have been more intense.
With the benefit of hindsight, thanks to our collective foresight, that gloomier scenario was averted.â€
There are, however, challenges such as: the provision of an electronic bond auction and trading system, disparate tax treatment for bonds, the introduction of new products to deepen the market and the constraints imposed by the Land Use Act.