The Debt Management Office (DMO) of Nigeria has announced subscription window for the Federal Government Savings Bonds (FGN Savings Bonds) for January 2025. specifically highlighting a three-year option at an interest rate of 18.235% per annum, and with a minimum subscription of N5,000.
Overview of the January 2025 FGN Savings Bonds:
There are two offerings available:
- Two-Year Bond: Due on January 22, 2027, with an interest rate of 17.235% per annum.
- Three-Year Bond: Due on January 22, 2028, with an interest rate of 18.235% per annum.
The subscription window for these bonds opened on January 13, 2025, and will close on January 17, 2025.
Each bond unit is priced at N1,000, with a minimum subscription of N5,000. Investors can subscribe in multiples of N1,000 up to a maximum of N50 million.
Interest on these bonds is payable quarterly. The coupon payment dates for both bond options are scheduled for April 22, July 22, October 22, and January 22 annually.
The settlement date for these bonds is January 25, 2025
Why Should Nigerians Invest?
The Federal Government of Nigeria’s (FGN) three-year savings bond for January 2025 has an interest rate set at 18.235%, which marks a significant increase from the rate of 12.033% offered in January 2024. This represents a rise of 6.20 percentage points over the year
The sharp increase in the interest rate is largely a response to Nigeria’s rising inflation, which has been reported at around 34%. This adjustment ensures that bond returns are competitive against inflation, offering investors a real return rather than a loss in purchasing power.
The Central Bank of Nigeria’s (CBN) consistent efforts to tighten monetary policy through rate hikes are evident here. Since February 2024, the CBN has been increasing the Monetary Policy Rate (MPR) to curb inflation, with the latest adjustment bringing it to 27.50% in November 2024. Followed by six consecutive rate hikes by the Monetary Policy Committee aimed at managing inflationary pressures and stabilizing economic conditions. This policy shift directly impacts bond yields, making government debt instrument a safer and better investment in 2025.
Investors view these bonds as part of a diversified portfolio, particularly those looking for a safe haven with guaranteed returns in a high-inflation environment. However, the decision should also account for one’s investment horizon, risk tolerance, and the need for liquidity. Excess capital can be used to buy these bonds, allowing their money to work for them.
These bonds are backed by the full faith and credit of the Federal Government of Nigeria and are charged upon the general assets of the country. They qualify as securities for trustees under the Trustee Investment Act and are considered government securities for tax exemption purposes for pension funds and other investors under the Company Income Tax Act (CITA) and Personal Income Tax Act (PITA).
This means that the Nigerian government pledges its ability to repay the bond through taxation, future revenues, or by borrowing more. This backing is essentially a promise that the government will honor its debt obligations, making these bonds one of the safest investments in the country. Nigerians should diversify their portfolios to more of government instrument that has more stability and less of corporate investment subject to market swings.
In times of economic uncertainty, investors often turn to government securities as a safe haven. Even in Nigeria, where economic conditions can be volatile, government bonds are seen as a stable investment. They provide a predictable return, which is particularly appealing when other investment avenues like stocks or real estate might experience significant volatility. The issuance and trading of government bonds are regulated by governmental bodies like the Debt Management Office (DMO) and the Securities and Exchange Commission (SEC) in Nigeria. These regulations ensure transparency, protect investor rights, and maintain market integrity, reducing the risk of fraud or mismanagement.
Interest earned on FGN Savings Bonds is exempt from state and local taxes in Nigeria. This tax efficiency increases the net return for investors, making government bonds even more attractive by comparison to taxable investments.
By investing in government bonds, Nigerians directly contribute to national development projects. This can resonate with those who want their investments to support infrastructure, education, health, or other public services, providing a dual benefit of personal financial security and national growth.
Comparison of December 2024 FGN Bond Auction to January 2025 FGN Bond Auction:
The January 2025 auction introduced a 3-year bond at 18.235%, which is higher than the 5-year bond at 19.30% from December 2024. This higher yield might attract investors looking for shorter-term commitments with competitive returns.
The 2025 auction offers bonds with different maturities (2 and 3 years) compared to the longer terms in December 2024 (5 and 7 years). This diversification allows investors to match their investment horizon more closely with bond maturities, enhancing portfolio management.
If the allocation figures for January 2025 FGN bond auction are higher, the trend seen in December will indicates a strong investor interest. This would be a sign of growing confidence in Nigerian securities.
The January auction’s rates reflect an adjustment to the ongoing high inflation and economic policies aimed at curbing inflation. The rates for both bonds in 2025 are higher than those for comparable terms in 2024, offering better protection against inflation.
With bonds offering shorter maturities in 2025, there might be an increase in liquidity for investors, as they can plan for cash flows sooner. This could be particularly appealing for those needing flexibility or planning for near-term financial goals.
INTERESTED INVESTORS SHOULD CONTACT THE STOCKBROKING FIRMS APPOINTED AS DISTRIBUTION
AGENTS BY THE DEBT MANAGEMENT OFFICE. PLEASE VISIT www.dmo.gov.ng FOR THE LIST OF
DISTRIBUTION AGENTS.