This Day (Lagos)

27 January 2014

Nigeria: Trading in FG Bonds Soars 1,081 Percent As Investors Stake N14 Billion

A turnover of 13.701 million units valued at N13.704 billion in 12 deals were recorded this week in contrast to 1.170 million units valued at N1.160 billion in 5 deals recorded in the preceding week ended January 17th 2014.

Value of trading in the Federal Government bonds at over-the-counter (OTC) market soared by 1,081 last week. Investors staked N13.704 billion on 13.701 million units in 12 deals, compared with N1.16 billion invested in 1.170 million units in five deals the previous week. The FGN bonds has continued to dominate the debt sector of the Nigerian Stock Exchange (NSE), accounting for 25 per cent per cent as at the close of trading last Friday.

The Nigerian bourse comprises the debt and equities markets. The debt market has a market capitalisation of N4.615 trillion, comprising Federal Government, State and Local Governments, corporates and supra-national. > Out of this, FGN bonds account for N3.977trillion or 22 per cent. States and local governments bonds followed with N471 billion or 2.6 per cent, while corporates have a share of N154.92 billion or 0.865 per cent. Supra-national bonds account for N12 billion or 0.017 per cent.

The dominance of the FGN bonds of the debt market results from the constant raising of funds from the capital market to finance budget deficit.

Although there have been complaints that the debt issuance programme of the federal government was crowding out private firms, the Director-General of the Debt Management Office(DMO), Dr. Abraham Nwankwo, had said the government was reducing its level of debt issuance.

According to him, the practice of financing part of the country's fiscal deficits by borrowing from the bond market has not only led to the development of the domestic debt market, it has brought other salutary benefits for monetary policy operations and the economy.

Nwankwo noted the transformation of the bond market, which the agency championed, has removed conflict of interest by making clear separation of debt management functions from monetary policy operations, thereby allowing other agencies, especially the CBN, to concentrate on its core mandate.

"The transformation of the bond market and raising funds from the market has subjected government's borrowing to market discipline; using long-term as against short-term funds to finance long-term projects, which is a clear case of optimal asset-matching; significant reduction in refinancing risks through tenor elongation and establishment of a Sovereign Yield Curve and benchmark for private sector borrowing," he said.

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