July 25, 2022

Investors cut patronage of FGN Savings Bonds by 27%

Nigeria’s China loan repayment

..As interest rate drops by 13bpts

By Babajide Komolafe , Economy Editor

Investors have reduced their patronage of FGN Savings Bonds by 27 per cent following the 13 basis points, bpts, cut in interest rate by the Debt Management Office, DMO.

The debt agency had reduced  the average interest rates on the FGN Savings Bonds, FSBs, by 13 bpts to  8.58 per cent at the July auction from 8.71 per cent at the June auction.

The interest rate on the 2-yr and 3-year FSBs were both reduced by 13 bpts to 8.075 per cent and 9.075 per cent respectively in July from 8.205 per cent and 9.205 per cent in June. 

This move however  contradicts the upward trend in interest rates following the two consecutive hikes in the Monetary Policy Rate, to 14 per cent in July by the Monetary Policy Committee of the Central Bank of Nigeria.

It also represents a reversal from the 26 bpts increase to 8.71 per cent on average interest rate on FSBs in June from 8.45 per cent in May. 

In apparent resistance to the cut in interest rate by the DMO, patronage for the FSB dropped by 27 per cent at the July auction, as total allotment fell to N1.37 trillion from N1.87 trillion in June. 

The 2-year FSB recorded the largest decline of 41 per cent, as allotment fell to N451 billion in July from N769.9  billion in June. The 3-year FSB recorded a 17 per cent decline to N915.86 billion in July from N1.1 trillion in June. 

The FGN Savings Bonds, FSBs,  was introduced by the Debt Management Office, DMO, on behalf of the Federal Government, as  a retail savings product accessible to all income groups.

Furthermore, the FSB was introduced to deepen the national savings culture and diversify funding sources for the Government.

The FSBs are issued monthly in tenors of 2 and 3 years.  Minimum subscription is N5,000 with additions in multiples of N1,000, subject to a maximum of N50 Million. The FSBs are issued at an interest rate indicated in the offer announcement and  interest is paid quarterly to investors.

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