HOW TO INVEST IN FEDERAL GOVERNMENT BONDS NOW AS INVESTMENT IN BONDS GAINS UPPER HAND.

INTRODUCTION.
As a lot of people are waiting for the stock market to recover, smart investors have now found bond markets as a ready instrument to apply their investment funds. Since this investment instrument is the safest. It has become a darling of many, including banks and investment outfits and insurance companies. No wonder most of the issued bonds are oversubscribed.
Waiting for the stock market to recover before you apply your fresh capital investment is like staying under water for hours and still expecting breathing to take place. Your cash will have a battle with inflation to survive. Bonds are instrument that most successful investors use as a good source of returns on investments for their financial fortunes. Especially in troubled times.
Actually, the stock market, to many may seem to be in the right now-which is not the case, the fact is that this time is very difficult to discern stock because, there are fewer right now so, bonds seen to help reduce the stress of even trying when you don’t have the skill and since bond trading is as simple as just filling the form with minimum analysis, you can got a good government bond on the floor of the stock exchange to buy. And the returns and the initial investments are guaranteed. Most investment will rather take this route.

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AS A BOND INVESTOR, YOU HAVE GUARANTEED FIXED RETURNS.
A bond is a certificate of indebtedness issued by a borrower to a subscriber. Bond issue is a situation where government creates an opportunity to borrow money from the investing public by issuing papers promising buyers of such papers or bonds a certain percentage of the cost representation (interest generated) of the bond every six months till the duration of the bonds. In bonds, the returns you make are fixed, your profit and how it is going to be paid is predetermined or is already stated and agreed upon by parties to the transaction.

BONDS HAVE GOVERNMENT PAY BACK SECURITY.
Bonds bear interest at either a fixed or variable rate, which can be subject to a cap known as the Maximum Legal Limit. As government draws its income from the society as a whole, its debt can be seen as an indirect debt of the taxpayers. Governments cannot really go bankrupt since they must keep providing essential services to citizens; hence the issue of default to payment to bond subscribers is very rare.

Bonds are floated by both the federal and state governments in a bid to raise capital for infrastructural development. Bonds are valuable tools for generating cash for projects. Even though that they have not particularly been popular in the past, but recently the rate at which bonds are being floated is quite amazing and the interest it is generating is equally astonishing. The money in it for investors is secured and fixed based on the fact that government must finance projects, must spend, must budget and government must pay you back.

HOW BOND STARTED.
Bonds are not entirely new in Nigeria, in 1978, the then Bendel State Government issued a N20 million bond on behalf of the Bendel State Development and Planning Authority to finance housing estates and shopping centres. That 10 years 7% coupon rate bond was fully subscribed. In 1985, the Ogun State floated a N15 million 12% coupon rate government water project bond, which was subscribed to the tune of 75%. In 1987, the Oyo State Government successfully floated the N30 million 16.5% Adamasingba shopping centre and sports complexes bonds. In the same year, Lagos state’s N30 million 17.5% Lekki Peninsula Residential and commercial construction bond was very successful and recently, Imo State floated the N40 billion Ogwuta Lake bond for the development of a resort facility at Ogwuta Lake. This also was successful.
To encourage long-term savings, the government introduced the sale of federal government of Nigeria (FGN Bonds) in October 2003. The FGN bonds were sold to the investing public through all licensed banks and discount houses in the country. However, most of the investors adopted a “Hold to maturity” approach but since the advent of the secondary market bond trading systems, the opportunity has become open for short-term profit taking and money making.
An example of bond is the Lagos state 13% fixed rate bond public offer, which pays an annual interest rate of 13% split twice yearly (i.e. on July 15 and January 15 each year).
Breaking it down, it means that if you invested N1, 000, 000 (one million naira) in this bond, you will get thirteen percent interest every year paid to you every six months, and that amount to N130, 000 per annum split into N65, 000 every six months. Then at the maturation date, that is, at the end of the tenure of the bond, you will get your one million naira back in full plus the last coupon payment of N65, 000. No saving account or dividend payout at this time can beat returns on bonds. If you are buying from the primary market, the Debt Management Office (DMO) publishes an offer circular detailing the bonds on offer and interested investors can collect application forms from the Primary Dealers and Market Markers (PDMMs) firms authorized to trade bonds on behalf of investors.

THE PRIMARY MARKET OPPORTUNITY.
The primary market is for the fresh issue of the bonds. This is done through a bidding process at auctions organized by the DMO. Investors interested in the primary auction can only bid through the Primary Dealers/Market Marker PDMMs bond brokers who are license to trade bonds on behalf of their clients or anybody who is interested in making money through bonds. The minimum investment in FGN bonds at auction is N10, 000 (Ten Thousand Naira) per bond maturity. There is minimum subscription of N10, 000 plus multiplies of N1, 000; thereafter, the coupon that is the dividend to be paid, is market determined and usually attractive. It is fixed and interest is paid semi-annually. The tenor runs for 3, 5, 7, 10 and 20 years depending. Its security is backed by the full faith and credit of the federal republic of Nigeria and all FGN bonds are tax exempted.

PROCEDURES FOR INVESTING IN FGN BONDS IMMEDIATELY.
First you must know that the federal government of Nigeria stands as the issuer of the bonds with the Debt Management Office standing as the issuer’s agent and the Central Bank of Nigeria is the agent’s bank and stock brokers to the offer are appointed periodically while the registrars are still the Central Bank of Nigeria and the issuing agent.

HOW TO INVEST IN FEDERAL GOVERNMENT BONDS.
The FGN bonds are sold to the investing public through Primary Dealers/Market Markers (PDMMs), institutions authorized to deal directly with the DMO in bond auctions they are involved in the issuance, sale and marketing of all FGN bonds. Apart from underwriting every bond issued, they also allow for trading process to take place on these bonds thereby creating an active secondary market trading for bonds issued by the DMO.

THE SECONDARY MARKET.
The secondary market is for trading of the already issued bonds. This market is fairly liquid, with large volumes traded daily. Investors can call the PDMMs to get bid and offer quotes for all the existing maturities issued after the commencement of the Primary Dealership System. Settlement is through the Delivery Versus Payment (DVP) System, on a Two plus 2 working days period. That is, once you make payment through your agents, your evidence of ownership is delivered to you in two days.

TRADING ON THE STOCK EXCHANGE.
The trading of bonds on the floor of the stock exchange is to enhance the liquidity of the bond, it gives opportunity for people who want to exit from the bond to do so at a bid and offer price that will be governed by demand and supply principle of the stock exchange. Bond trading can be very lucrative and it is not as tedious as stock trading even though, the processes are the same. You have to go through the stockbroker since this trading is done through the secondary market. You buy from somebody who already has and is willing to sell some or all of his holding at a particular price. Don’t forget that stock or bond speculation is risky when you don’t have the knowledge. Also don’t borrow money to invest when you don’t know the terrain.

SUMMARY OF TRADING METHODS FOR BONDS.
As investors in this fixed income, you have two markets where you can invest in FGN bonds to earn guaranteed goods returns.
1. At the primary market, where auctions are held every month.
2. At the secondary market, where Primary Dealer Market Markers (PDMMs) sell and buy bonds every working day.

SIMPLE ADVANTAGES OF BONDS.
Government issues bonds to raise capital to finance its activities, manage its borrowing more efficiently. All these help, the economy. Government also provides a basis for benchmarking the coupons. To provide a basis measuring interest rates for most market instruments. To deepen and enhance savings and investment opportunities. It is also used for the mobilization of funds for the development of infrastructure and the real sector of the economy. You are helping to diversified, solidified and self sustaining the economy.
Debt Management Office, Plot 4471448, Constitution Avenue Central Business District PMB 532 Garki Abuja, Nigeria. Telephone: 234-9-675629.

YOU DO NOT PAY TAX ON YOUR RECEIVED INTEREST.
The issuer, which is the government in this case, typically uses proceeds from a bond sale to pay for capital projects or for other purposes it cannot or does not desire to pay for immediately with funds on hand. Tax regulations on governing bonds generally require all money raised by a bond sale to be spent on one time capital projects within three to five years of issuance.

HOW TO GET YOUR RETURNS.
You have options and you decide whether to hold your bond till maturity (and enjoy streams of coupon payments every six (6) months or sell it off at the OTC market whenever there is an opportunity to make capital gains through secondary market transactions. Both interest payment and capital gains are tax free at the instance of a “Special Waiver” granted by the Federal Inland Revenue Services (FIRS).

ADVANTAGES OF BONDS OVER SHARES.
The advantage of bond over shares is that in shares, when you receive dividend, tax is deducted, and you may not always have dividend if the company does not declare its profit. But in bonds because of its irredeemable investment system, the investor knows what his returns will be.

HOW TO MAKE MONEY FROM DEBENTURE STOCK.
A debenture is a long-term debt instrument issued by corporate institutions for the purpose of raising funds. A debenture is backed by all the assets of a company which have not been pledged otherwise. The debenture holder functions as a lender to the issuer of the debenture and in return a specific rate of periodical interest is paid to the debenture holder. This is very much different when compared to equally stock which offers investors unguaranteed dividend payment, unstable price on the exchange and relatively low yield.

AVAILABLE OPPORTUNITY NOW!
First bank ever dollar bonds to the tune of $3.3 billion (500 billion naira) is coming to Nigeria. I remember GT Bank offering its Eurobond of $350 million rating 8.5% on a tenor of 2012 with investors already taking their returns in foreign currencies; and Access Bank’s N13.5 billion naira bonds was successful. Now NAHCO (National Aviation Handling Company) is hitting the streets with a N5 billion bond to support its expansion and operation. It is an inconvertible bond that will not liquidate its shareholders status. Then you have the Imo state and Kwara State Governments following the path of Lagos state government, this market are set for a boom.
Currently trading daily in the secondary market is the FGN bond of 2010 and 5 year tenor trading on the basis of 13.49%, 12% and 10.95% coupon rate with transactions in the bond market entering the trillion naira market and the primary dealer market markers standing in as brokers for would-be investors. The wealth in this sector is bound to simmer down to many... judging from the fact that bonds are large and save investment. They have face value, coupon rate and maturity date. You can take advantage of the different instruments and various tenors anytime.

See you at the bank!

Pls include the necessary things to be done or will be needful to buy the bonds and also how to get info on which bond is next*don't know if i make sense* Hope u get wat am trying to say?
Thanks alot tony1980.

hello broda, im interested, please send the detains to my box. Bennydc4real@yahoo.com

@tony1980,
How can one invest in this bond stuff and what's the minimum amount you can invest and also the interest...

what is the interest rate and ow frequent does it come

we ar here talking crious bizness nd few pple av commented...bt wen it comes to talkin RUBBISH, d whole page will b filled up....na wa ooo.....all d same tnx man 4 d info. I wud want to also partake in such deals too

Thank you for the info.

Wat are talkin abt? Since 2day nairaland hav just been talkin buzness.... U guys is dullin nairaland

I nid to bookmark ds page

Nice one! Lemme start saving up for this.

What are the step to take as a small scale investor cos i learn that bond mkt is for big and multinational investment company not for individual.please enlighten us

Op come answer these people above me before I ask my own.

I wonder why this vague explanation made front page. Feelamong has a better and more detailed thread on this topic as he is an active bond buyer. This thread didn't even make it known that you need more than a million naira before you can purchase.

Bond is not meant for people with little capital.

https://www.nairaland.com/878880/treasury-bills-why-it-best

This link will educate you more with practical insight.

blink182: I wonder why this vague explanation made front page. Feelamong has a better and more detailed thread on this topic as he is an active bond buyer. This thread didn't even make it known that you need more than a million naira before you can purchase.

Bond is not meant for people with little capital.

https://www.nairaland.com/878880/treasury-bills-why-it-best

This link will educate you more with practical insight.

thanks

blink182: I wonder why this vague explanation made front page. Feelamong has a better and more detailed thread on this topic as he is an active bond buyer. This thread didn't even make it known that you need more than a million naira before you can purchase.

Bond is not meant for people with little capital.

https://www.nairaland.com/878880/treasury-bills-why-it-best

This link will educate you more with practical insight.

LIAR!!!!!! Visit any branch of FCMB with your 200k and FGN Bond is yours. Some other primary dealer/brokers may even buy for as small as 10k. Do ur research before spewing nonsense here.

wow, this is very interesting. can u suggest any book that sheds more light on this topic. thanks

I will never invest in anything government due to the following reasons

1, Another government can come in and refuse redeeming it.

2, Nigeria is an oil dependent country with the possibility of US starting to explore it oil reserves in 2017 and many other coutries discovering oil there is very possibility of oil going for less than 20 dollar per barrel which means less money to states how can they redeem it.

3, The possiblity of war or riots everywhere due to the present realities in Nigeria

9free:
LIAR!!!!!! Visit any branch of FCMB with your 200k and FGN Bond is yours. Some other primary dealer/brokers may even buy for as small as 10k. Do ur research before spewing nonsense here.

Please, can you tell us where we can get primary dealers that buy as Small as 10K?

i will read this again

the poster should fill us in as soon as the kwara state bond and first bank bond is out.

Nig gov bonds are good and d returns are pretty high 4 a supposed risk free investment. D economy will keep suffering if gov keeps chucking out dis high yield bonds. Banks, investment houses, and high network individuals are making a kill. D OP just told us dat GTB issued their bond at 8.5%, which has a lower return than Nig gov bond. This is madness and should not be allowed to happen. Wat stops GTB from investing all d money raised on gov bonds at 13%.

Thanks dear

Mr.Sinister:


Please, can you tell us where we can get primary dealers that buy as Small as 10K?

The NSE recently commenced retail bond trading which means from a little over N10,000, you can trade bonds from online portals like this www.meritrade.com

Bond trading is no longer an exclusive preserve of wholesale clients.

@OP Thanks 4 d example u gave with 1million naira investment cos I'd hav bn rejoicing I had found the money spinner I yearn for. 1milla to get 65k per annum? NO Thanks!

Posts like this are what we need on the frontpage

nice love this brother

Ishsoph: @OP Thanks 4 d example u gave with 1million naira investment cos I'd hav bn rejoicing I had found the money spinner I yearn for. 1milla to get 65k per annum? NO Thanks!

Read again. He said 65k for 6 months which is equivalent to 130k per annum. :/

My finance lecturer told us dis in class..we didn't take it serious..I think I will have to go and meet him..

bigbablo:

The NSE recently commenced retail bond trading which means from a little over N10,000, you can trade bonds from online portals like this www.meritrade.com

Bond trading is no longer an exclusive preserve of wholesale clients.

www.meritrade.com collects a minimum of N50,000 and not a little over N10,000 has you wrongly claimed.

HAH: I will never invest in anything government due to the following reasons

1, Another government can come in and refuse redeeming it.

2, Nigeria is an oil dependent country with the possibility of US starting to explore it oil reserves in 2017 and many other coutries discovering oil there is very possibility of oil going for less than 20 dollar per barrel which means less money to states how can they redeem it.

3, The possiblity of war or riots everywhere due to the present realities in Nigeria

A country cannot default in paying bonds. It is impossible. They will rather issue new bonds at a higher interest rate to pay back. It is a very big deal to default. That is why they are called risk free bonds cos there is no issue of them defaulting.

I go like invest but i no get money! Na only 20k savings I fit boast of for the whole of 2012. Abeg, make una help person na!