akinola98:


I called my sharebrokers ( GTI) to purchase FGN bond from the secondary market but I was amazed when I was informed the minimum amount to buy is 100M naira
Is that right across the board

I know the minimum for primary market is 50M but never knew it was higher for secondary market

Anybody with ideas please?

It varies with company. Afrinvest minimum is N20Million

Please not that this is not a sales pitch as i do not have any relationship with them. Do your due diligence, i'm sure there will be other company that are willing to sell with a lower entry amount. You can as well start an investment club with your friends of like minds where funds are warehouse and invested as a lump sum.

awesomeJ:

So I've used the figures you posted earlier, but the yields are got are not exact. I thought perhaps the figures were published on a date different from my assumption, so I decided to use figures from the DMO's site, still, there's a slight difference.

So I there's still something missing from my analysis. Maybe I'll find it, or maybe someone else here will. The latter is more convenient for me.

Thanks for taking a good stab at this!

Finally got through to them and i was advised to focus more on the implied price and the coupon rate. Would still continue with my research to see ho the final figure was arrived at.

Cheers

cooldudeng:


It varies with company. Afrinvest minimum is N20Million

Please not that this is not a sales pitch as i do not have any relationship with them. Do your due diligence, i'm sure there will be other company that are willing to sell with a lower entry amount. You can as well start an investment club with your friends of like minds where funds are warehouse and invested as a lump sum.

Thanks for the advice

awesomeJ:

I once learnt that the minimum investment for Eurobonds with Investment One Financial Services is $200k (N72 m).

I'm sure with time, we'll find out more about other investment houses.

I think it is far less than that...they pool the fund together from various investors to invest in the bond. But my take in that is that 6% is low as the interest rate even though all payments will be made in USD. The fairly stable forex at the moment might tempt one to converting the USD to NGN, invest and reconvert the money to USD when it matures!

I will be interested in such (visionscape) after 2019 elections because they are highly politically exposed.

awesomeJ:

Thank God for the rating Agencies. I may be skeptical on any bond with a rating below B+, but I'd be pretty much comfortable with those having B+ or higher.

I know ratings can be manipulated, but I don't think such practice is really prevalent.

Another gauge, is if most asset managers and PFAs are buying into a bond, it'd spell some more comfort for me.

That Visionscape bond, can you give us more info on it.
When did the auction take place?
How could retail investors like us have participated?
When/Where will it be listed,
What funding support do they have from the Lagos state government. (They're the clean Lagos initiative guys right?)

awesomeJ:

Since the guy bought 100,000 units, with each having a face value of N100, he will get 10m upon maturity.

Hence from your explanations, it is always more profitable to purchase bonds at the secondary market?

Egie4real:

Hence from your explanations, it is always more profitable to purchase bonds at the secondary market?

Not exactly.

If you read up the trend, you would see that for the short and mid-term bonds, they are sold at a premium in the secondary market e.g Feb 2020 being sold at over N100 per unit (about N105.04). The implication is that, if you were to invest 10million now, you will only get 95,201 units (10,000,000/105.04) and on maturity that will be 9,520,100 (looking at just the principal) as against the N10million invested.

However, the coupon, being interest earned would have paid off for the loss on maturity. So net, you still would make a profit considering the subject bond has a coupon rate of 15.54% meaning that (95,201 * 15.54) N1,479,423.54 would be paid annually over a 2 year period. Also, based on the fact that the bond is even 3 months gone from issuance (issued March 2018), you won't have to wait 2 years but 21 months to get the aforementioned payment in full since the first interest as not even been paid and would only be due in August (6 months after issuance). Net you will get a total of cN12.5million from an investment of N10million

Now do the maths for someone that actually bought at par (N100) and his planning on waiting till maturity. He would have earned more

Please note that bonds are impacted my interest rate (inversely proportionate) and this risk is only eliminated when you wait till maturity.

The Gurus in the house can confirm the above computation as this is based on my research.

I never get the entry level money to do bond.

Egie4real:

Hence from your explanations, it is always more profitable to purchase bonds at the secondary market?

I have to mention that the reason it seems my analysis of secondary market bond purchases tend to imply a higher yield is that I've only been considering bonds purchased at a discount.
If the purchase price were at a premium to the bond's face value, the yield would be lower. The instance cooldudeng gave in his post above, buttresses this point.

Firstly, many thanks for your meticulous explanation. I have come to be an avid fan of your posts on this and the TB thread.

Regarding the calculations below, it is nicely done but I'm having issues understanding where the 80 in the calculation of the total coupon receipts comes from. The only related info relating to 80 is the one below on the previous page by @kolping:

........ However, the DMO displayed a stingy streak as it elected to only allot 80%.

Is this the origin of the 80 in your calculation? Can you please shed more light on that?

Many thanks and best wishes.

awesomeJ:
So case 1:
FGN 16.00 FEB 2021 bond to be purchased in May 2018 at an offer price(dirty) of 950 per unit. What's the yield?

Things we already know:
Face value of an FGN bond, F= 1000.
Coupon payment dates will be in August and February of each year.

Thus, total number of coupon receipts to maturity = 6 ( Aug'18, Feb'19, Aug'19, Feb'20, Aug'20 and Feb'21)
Total coupon receipts = (80.00*6) = 480 (at 16%, coupons'll be 80 every six months)
Total capital gains = F-P (1000-950) = 50.
Term to maturity= 2 years, 9months (May'18-Feb'21) =2.75yrs.

Annualized coupon = 480/2.75=174.55
Annualized price gains= 50/2.75=18.18
I.e
C=174.55
G=18.18
Therefore
yield y= ((174.55+18.18)/950)*100%
y=20.29%

awesomeJ:

I have to mention that the reason it seems my analysis of secondary market bond purchases seems to imply a higher yield is that I've only been considering bonds purchased at a discount.
If the purchase price were at a premium to the bond's face value, the yield would be lower. The instance cooldudeng gave in his post above, buttresses this point.

Exactly what I was thinking about. This thread has really been impactful!
But why would bond be sold at a discount? Could it be desperation to offload the bond?

Hello All
I have been following this educative discussion with immersion. People have mentioned buying FBN bond from secondary market with 1M, 5M, 10M

Am yet to see an institution that collect such for the purchase even the ones I contacted yesterday told me it is a minimum of 50M, one even said 100M to buy from secondary market

Can someone please list institutions that collects 20M and less for purchase of FBN bond from secondary market. Thanks

Egie4real:

Exactly what I was thinking about. This thread has really been impactful!
But why would bond be sold at a discount? Could it be desperation to offload the bond?

The going rate is influenced by interest rate

Take for example, let’s assume I bought a bond 5 year bond at say 12% coupon rate. When interest rate goes up say from 200bps (+2%), this wold likely impact on other investment vehicle say T-bills and newly issued bonds making them have a higher yield or coupon rate. Hence, investors will shun existing bonds and a bond holder that’s willing to cash out will have to sell at a discount so the effective yield can be attractive.

That’s the inverse relationship I was taking about. Oga awesomeJ can add a piece to this. Me sef na still learner

JustBasic:
Firstly, many thanks for your meticulous explanation. I have come to be an avid fan of your posts on this and the TB thread.

Regarding the calculations below, it is nicely done but I'm having issues understanding where the 80 in the calculation of the total coupon receipts comes from. The only related info relating to 80 is the one below on the previous page by @kolping:

........ However, the DMO displayed a stingy streak as it elected to only allot 80%.

Is this the origin of the 80 in your calculation? Can you please shed more light on that?

Many thanks and best wishes.

Thanks for the nice words.
This is where the 80 came from:
Face value of the bond is 1000,
Coupon rate is 16%
this means the coupon receipt on each bond unit is 160 per year (16% of 1000)
Since coupons are paid twice per year, each coupon payment would be 80 (160/2)

cooldudeng:


The going rate is influenced by interest rate

Take for example, let’s assume I bought a bond 5 year bond at say 12% coupon rate. When interest rate goes up say from 200bps (+2%), this wold likely impact on other investment vehicle say T-bills and newly issued bonds making them have a higher yield or coupon rate. Hence, investors will shun existing bonds and a bond holder that’s willing to cash out will have to sell at a discount so the effective yield can be attractive.

That’s the inverse relationship I was taking about. Oga awesomeJ can add a piece to this. Me sef na still learner

There's nothing else to say. You've said it all.
Mean while. you still have to finish the number crunching to see how the quoted yields are gotten. You are good with numbers yourself, and more good heads- they say-are better than few.

awesomeJ

Yield is simply calculated as C/cp

C: coupon (in monetary value)
CP: clean price ( amount used to purchase the instrument)

The formulae you used above is similar to that of TRR.

spenca:
awesomeJ

Yield is simply calculated as C/cp

C: coupon (in monetary value)
CP: clean price ( amount used to purchase the instrument)

The formulae you used above is similar to that of TRR.

what's TRR please?
Look at these secondary market offers posted by cooldudeng?
1. Feb 2020, coupon is 15.54%, price is 104.55, yield is 12.5%
2. Jan 2022, coupon is 16.39%, price is 108.57, yield is 13.35%.

Could you please help us know how they arrived at those quoted yields.

I suppose a bond only trades at its clean price either at issue or on a coupon payment date right?

I'll be glad to learn from any contribution you make at helping us see how those yields were arrived at. Thanks

awesomeJ:

what's TRR please?
Look at these secondary market offers posted by cooldudeng?
1. Feb 2020, coupon is 15.54%, price is 104.55, yield is 12.5%
2. Jan 2022, coupon is 16.39%, price is 108.57, yield is 13.35%.

Could you please help us know how they arrived at those quoted yields.

I suppose a bond only trades at its clean price either at issue or on a coupon payment date right?

I'll be glad to learn from any contribution you make at helping us see how those yields were arrived at. Thanks

If I invest 10m for the 2022 coupon, how much will be my interest annually. Thanks

GODAKPAN:


If I invest 10m for the 2022 coupon, how much will be my interest annually. Thanks

Good morning to you sir.
Since the offer price of the bond is 108.57, if you buy with 10m, you'd be getting 92,106 units (10m/108.57)
Now the face value of the bond is 100 per unit and the coupon is 16.39 per unit per annum. so your annual coupon receipts would be 1,509,617.34 (16.39*92106).
This may make it seem like your yield is 15.09% (1.509m on 10m) as Spenca is suggesting.

But you have to consider the fact that when the bonds mature in Jan 2022 (3.67 years' time). The principal that'll be returned to you will be 9,210,600 and not 10m. This implies that you'll be having a capital loss of about 789400 over a 3.67 year period. This translates to an annual loss of about 215095. When you net this off your annual coupon receipts, it becomes obvious that your real annual returns on the 10m investment is about 1,294,522
Making the effective yield 12.94%

The yield quoted is 12.5%

So I'm still trying to understand why there's a difference.

But basically, you should realize that while you may be getting 1.5m in annual coupons, your real returns are not as much when you factor in the capital loss.

My sincere appreciation to various explanatory ideas.. But we will want more direct and practical bond sale prospect when ever there is or if there is any in the market now...

awesomeJ:

Good morning to you sir.
Since the offer price of the bond is 108.57, if you buy with 10m, you'd be getting 92,106 units (10m/108.57)
Now the face value of the bond is 100 per unit and the coupon is 16.39 per unit per annum. so your annual coupon receipts would be 1,509,617.34 (16.39*92106).
This may make it seem like your yield is 15.09% (1.509m on 10m) as Spenca is suggesting.

But you have to consider the fact that when the bonds mature in Jan 2022 (3.67 years' time). The principal that'll be returned to you will be 9,210,600 and not 10m. This implies that you'll be having a capital loss of about 789400 over a 3.67 year period. This translates to an annual loss of about 215095. When you net this off your annual coupon receipts, it becomes obvious that your real annual returns on the 10m investment is about 1,294,522
Making the effective yield 12.94%

The yield quoted is 12.5%

So I'm still trying to understand why there's a difference.

But basically, you should realize that while you may be getting 1.5m in annual coupons, your real returns are not as much when you factor in the capital loss.

It is safe to say that based on this analysis the return does not worth it, having lost part of the principal. This bond of a thing is confusing.

Agbaletu:

It is safe to say that based on this analysis the return does not worth it, having lost part of the principal. This bond of a thing is confusing.

You should always focus on the yield sir. Despite the loss in capital the net yield is still about 12.5 % (as quoted). That's still currently higher than T-bills.

It's often more attractive when the bond is purchased at a discount. The yield would be higher.

engrken2:
My sincere appreciation to various explanatory ideas.. But we will want more direct and practical bond sale prospect when ever there is or if there is any in the market now...

You can always buy bonds on any given day at the secondary market through your banks, brokers or investment houses.
The issue we're trying to walk around is the minimum investment threshold.

So far we have:
FSDH 50m
GTI securities 100m
Afrinvest 20m
FGN BOND Primary market 50m
FirstBank Eurobonds $100k
Most other Eurobonds $200k

awesomeJ:

You should always focus on the yield sir. Despite the loss in capital the net yield is still about 12.5 % (as quoted). That's still currently higher than T-bills.

It's often more attractive when the bond is purchased at a discount. The yield would be higher.

You are right.

OK so can one invest 100k-1m in any of this... Which one can give us high yield.. If no please notify us wen

engrken2:
OK so can one invest 100k-1m in any of this... Which one can give us high yield.. If no please notify us wen

currently, it's only the savings bond I know has very low threshold (even below 100k),
Gaverilino mentioned that one can buy with 10k upwards from GTbank, and i earlier posted that a rep from Stanbic said 5k upwards. I kinda feel these may be old figures.

maybe you could try asking your bank too.
I want to also find time to ask at FBN and maybe Zenith too.

After meeting the required threshold, buying is as easy as filling a form, or writing a letter.

ease of premature termination is also to be keenly considered

OK thanks... Let's me hold on to fgn bond

awesomeJ:

what's TRR please?
Look at these secondary market offers posted by cooldudeng?
1. Feb 2020, coupon is 15.54%, price is 104.55, yield is 12.5%
2. Jan 2022, coupon is 16.39%, price is 108.57, yield is 13.35%.

Could you please help us know how they arrived at those quoted yields.

I suppose a bond only trades at its clean price either at issue or on a coupon payment date right?

I'll be glad to learn from any contribution you make at helping us see how those yields were arrived at. Thanks

What you have there boss is the yield to maturity (YTM)
TRR : total rate of return

awesomeJ:

Good morning to you sir.
Since the offer price of the bond is 108.57, if you buy with 10m, you'd be getting 92,106 units (10m/108.57)
Now the face value of the bond is 100 per unit and the coupon is 16.39 per unit per annum. so your annual coupon receipts would be 1,509,617.34 (16.39*92106).
This may make it seem like your yield is 15.09% (1.509m on 10m) as Spenca is suggesting.

But you have to consider the fact that when the bonds mature in Jan 2022 (3.67 years' time). The principal that'll be returned to you will be 9,210,600 and not 10m. This implies that you'll be having a capital loss of about 789400 over a 3.67 year period. This translates to an annual loss of about 215095. When you net this off your annual coupon receipts, it becomes obvious that your real annual returns on the 10m investment is about 1,294,522
Making the effective yield 12.94%

The yield quoted is 12.5%

So I'm still trying to understand why there's a difference.

But basically, you should realize that while you may be getting 1.5m in annual coupons, your real returns are not as much when you factor in the capital loss.

Thanks boss, can in get this at the banks?

spenca:


What you have there boss is the yield to maturity (YTM)
TRR : total rate of return

Thanks sir.
So which one is often quoted for bonds? the yield to maturity or the coupon yield? I'm thinking it's the yield to maturity. is it?

GODAKPAN:
Thanks boss, can in get this at the banks?

As soon as I get through to zenith or FBN, I'll give updates.

awesomeJ:

Thanks sir.
So which one is often quoted for bonds? the yield to maturity or the coupon yield? I'm thinking it's the yield to maturity. is it?

The issuer of the bond beliefs that at first issuance you will hold to maturity hence the current yield will be what the coupon offers. But at the level of the secondary market YTM will either have upside or downside, this is due to the fact that bonds will either be selling for a premium or a discount this affects the yield as most will not be sold at par value.
If you have a bond in your portfolio and you want to know your current yield just use the formulae I gave earlier but in cases of the exchanges the mostly will quote YTM based on the belief aforementioned