Declining Disposable Income Depresses FGN Savings Bond

Investors have reduced their patronage of FGN Savings Bond as subscription value has dropped by 13.7% to N10.7 billion in the third quarter 2023, Q3’23, as against N12.4 billion recorded in the corresponding period of 2023, Q3’22.

Vanguard’s findings from the data released by the Debt Management Office, DMO, also show that number of allotted subscriptions to the FGN Savings Bond declined by 27.7% to 5,429 in Q3’23 as against 7,507 in Q3’22.

These are coming despite the rise in the average coupon rate for the Bond, otherwise known as interest rate for both two and three years tenor to 9.95% and 10.95% in Q3’23 from 8.4% and 9.47% respectively.

Commenting to this development, analyst and Executive Vice Chairman, Highcap Securities Limited, David Adonri said: “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.”

Also commenting, analyst and Head of Research and Investment at Fidelity Securities Limited, Victor Chiazor, stated: “The low disposable income of investors caused by rising inflation is a major factor that could 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 increases the interest rate to levels that becomes more attractive to the market.”

However, analyst and Managing Director, APT Securities, Mallam Garba Kurfi, attributed the development to financial market dynamics.

He stated: “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 makes investment into FGN Savings Bond with negative returns reduced. With upsurge of the stock market in recent time if sustained there is likely hope of further decline in FGN Savings Bond.”

October 31, 2023