Investor interest in the FGN Savings Bond has seen a significant decline in the third quarter of 2023, with a 13.7% drop in subscription value from N12.4 billion in Q3’22 to N10.7 billion in Q3’23.
Moreover, the number of allotted subscriptions also witnessed a substantial decrease of 27.7%, falling from 7,507 in Q3’22 to 5,429 in Q3’23, as revealed by data from the Debt Management Office (DMO).
Interestingly, despite the decrease in investor participation, the average coupon rates for the FGN Savings Bond increased for both the two-year and three-year tenors, reaching 9.95% and 10.95% in Q3’23 from 8.4% and 9.47% in the previous year. This rise in interest rates, designed to attract investors, has not been sufficient to stem the decline.
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David Adonri, an analyst and the Executive Vice Chairman of Highcap Securities Limited, suggests that the shrinking disposable income of retail investors, who are the primary target of this product, may be the root cause. He also highlights that the yield on the Savings Bond isn’t competitive when compared to more conventional FGN Bonds or SUKUK.
Victor Chiazor, another analyst and the Head of Research and Investment at Fidelity Securities Limited, points to the low disposable income of investors, primarily due to rising inflation, as a significant factor contributing to the reduced appetite for the FGN Savings Bond. He mentions that investors have other attractive options, such as equities, which are more appealing in the current economic climate.
In contrast, Mallam Garba Kurfi, an analyst and Managing Director of APT Securities, believes that financial market dynamics play a crucial role in this development. He suggests that the strong performance of the equities market might have led to investors diverting their funds into stocks, given the potentially higher returns. Additionally, the rise in inflation has made FGN Savings Bonds less attractive due to their negative real returns. With the recent upsurge in the stock market, he anticipates that the FGN Savings Bond may continue to see a decline in investor interest.
