Michael Eboh
27 November 2008
In order to make investment in Federal Government of Nigeria's (FGN) bonds attractive to both local and foreign investors, the Debt Management Office (DMO) has announced its decision to introduce inflation-index bonds to cushion the effect of inflation on earnings of investors in the bonds.
Speaking during an interactive session between the DMO and Primary Dealers Market makers (PDMM) in FGN bonds organised by First Securities Discount Houses (FSDH) in Lagos on Tuesday, the Director-General of the DMO, Dr. Abraham Nwankwo disclosed that the move is intended to further deepen the bond market in the country and further help in providing long term funds to government and corporate organisation.
He said, "We are aware of the need to further introduce new instruments that will make the bond market attractive and profitable to investors. To this end we will soon introduce inflation-index bonds. This is because we know that inflation can erode investors' earnings on these bonds.
The bonds will be designed in such a way that whenever inflation is high, the earnings on the bonds will be high too. The earnings on the bonds will be benchmarked against the inflation rate at the prevailing time."
He bemoaned the absence of functional infrastructure facilities in the country, stating that it intends to redress the situation by developing the bond market, making it able to provide financing for infrastructural projects such as power, housing, water, education, healthcare among others.
He disclosed that it has put various measures in place to deepen the bond market, so as to make it achieve its purpose of providing alternative and long term source of financing for government and corporate institutions.
To this end, Nwankwo disclosed that its introduction of the 20-year bond was timely and will help in providing the much needed financing by government and the private sector and would contribute significantly to growth and development of the Nigerian economy.
He said, "The 10 million unit 20-year bond that was introduced November 26, will go a long way in contributing to Nigeria's economic development. The introduction of the bond will help Nigeria in its march towards the achievement of its 2020 objectives. This is because the economy cannot grow in the absence of long-term funds."
He reiterated its commitments to the issuance of new bonds and addressing some of the problems militating against the development of the country's bond market, such as the need to implement an electronic trading for the domestic bond market, to facilitate bond auctioning, trading and transparency, the need for a review of the relevant regulation and tax system among others.
He disclosed that N8.1 trillion FGN bonds were traded in the month of October in 67,144 deals, while average monthly transactions for the bonds stood N817.28 billion.
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