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FG cuts Savings Bond rates to record low on strong retail appetite

The Nigerian government has cut the interest rates on its Savings Bonds to the lowest levels on record to take advantage of strong investor appetite amid negative real returns on its short-term debt securities to borrow cheaper.

The interest rates on the two-year and three-year FGN savings bonds were lowered to 9.091 percent and 10.091 percent respectively, according to a notice for December auction released by the Debt Management Office (DMO) on Monday.

These rates are the lowest since March 2017 when the DMO, which issues the retail savings product on behalf of the government, conducted its maiden savings bond auction.

“The alternative to savings bond for retail investors is treasury bills which are currently at low-yield levels,” Omotola Abimbola, a micro and fixed-income analyst at Lagos-based Chapel Hill Denham explained, noting that “the DMO had to re-price the savings bonds lower to reduce to the cost of borrowing for the federal government” following a “healthy retail participation”.

The government plans to cut its borrowing cost and ramp-up its revenue collection has consistently failed to meet its targets in the past half a decade.

The Central Bank of Nigeria restricted participation in its OMO market to foreign investors and local banks to support the plan, a move that left individual and non-bank local corporate investors searching for alternative investable options to reinvest proceeds of OMO maturities.

Consequently, interest rates on the government T-Bills at the last auction crashed to 6.495 percent, 7.23 percent, and 8.37 percent on the 91-day, 182-day and 364-day papers, respectively, the lowest since January 6, 2016, while the average discount rate on the bills at the secondary market declined to 6.86 percent last week.

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