There are indications that investors’ interest in the FGN Savings Bond is waning as the value of subscription fell by 14.4% to N8.8 billion Year-on-Year, YoY, at end August 31, 2023, a situation attributed to rising inflation rate among other factors.
The figure was N10.287 billion in the same period ended August 31, 2022.
The latest Debt Management Office, DMO, data obtained by Vanguard also showed that allotments of the bond declined by 26.9% to 4689 in the eight months period ended August 2023 as against 6413 in the corresponding period of 2022.
Capital market operators and stakeholders have attributed the declining performance to low purchasing power caused by the rising inflation that hit an all time high of 25.8 % in August 2023.
Vanguard’s findings reveal that the value of transactions has been unstable since this year.
Commenting on the situation, Victor Chiazor, analyst and Head of Research and Investment at Fidelity Securities Limited, said: “The reduced investors’ interest in FGN Savings Bond does not come as a surprise to many given the continuous rise in inflation rate that does not match with the Minimum Rediscount Rate, MRR, and increased volatility being experienced in the equities market.
“The low disposable income of investors is a major factor that could also be responsible for the low appetite as there are other viable options like equities.
“Recall the massive flow of investment into the FGN Savings Bond when the equities market was bearish and activities around the market were flat.
“However, with this season we have seen a higher level of volatility in the equities market and if this momentum is sustained we will continue to see reduced investment in the FGN savings bond for the rest of the year, except the government significantly increases the interest rate to levels that becomes more attractive to the market.”
Commenting, analyst and Vice Executive Chairman, Highcap Securities Limited, David Adonri, said: “Concerning the decline in subscription for FGN Savings Bond, the dwindling disposable income of retail investors who are target of the product may be responsible. Yield on Savings Bond is also not competitive when compared to orthodox FGN Bonds or SUKUK.”
Commenting as well, analyst and Managing Director, APT Securities said: “The good performance of the equities market could have led to the low level of investment in the FGN Savings Bond as more investors divested to stocks. Also, the rise in inflation to 25.8 % makes investment into FGN Savings Bond with negative returns reduced. With upsurge of the stock market there is likely hope of further decline in FGN Savings Bond.”