Check out this article on how Nigerians can invest in bonds:

What are bonds? Bonds are simply a term for loans that you give to the Federal Government, State Government, Companies etc.

Is it a document or what? It's simply a piece of paper issued by the Borrower (e.g the Government) stating the amount borrowed from you, the tenor (no of years with which to repay), interest rate, and repayment period

Why me? Can't they go to a bank to borrow money? You because you may have some money that you wish to save. You may say you have just N10k to save a month from your salary and wonder how that helps the government. Imagine that there are 1million people with N10k to save, that transcends to N10b already. Also have in mind that the money the banks actually lend are money deposited by you and I. So you and I are the major source of money for government, banks, corporations etc. That is why they tax us, pursue us to open accounts, and pressure us to buy their goods.

What's in it for me? Bond issuers (borrowers like the government) typically attach a coupon to the Bonds. Coupon are basically interest rates attached to the Bonds issues. For example, the Government can issue a bond for say N10b, 10year bonds at a coupon of 6%pa. What they mean is that they want to borrow N10b from the public and are willing to pay 6% interest rate for it per annum for a period of 10years. Usually they pay you the principal amount at maturity meaning at the end of 10years and sometimes they can have the option to "call back" which basically means the can pay you the principal before the 10 year period. Bonds with "Call Back" are always clearly stated in the prospectus.So, in a nutshell if you borrow them N10k, you form part of many others who must have lent them as well. They pay you N600 per annum and pay you the N10k a the end of 10 years.

What? Just N600? Yes just N600. Well, you may think of it as low but the if you put that same amount in a Savings Account of bank you'd probably get N200 and stand the risk of loosing it if the bank collapses. Besides if it is N1m you invest then that's N60k every year, N10m is N600k and N100m is N6m per annum.

Are you saying Government Can't collapse? Well technically they can but it's very unlikely. Even if they do, it's if there is a war but then they must repay after the war is over. Government bonds are mostly secure and are guaranteed by the full faith and credit of the Government.

So I have to wait for 10years to get my money back? Off course not. The beauty of bonds is that you can exchange them just like shares. You can decide to sell your bond on the bond market if you want your money back.

Oh, so I put in N10k and get my N10k back plus interest? Yes if you decide to hold to maturity and wait for 10years. But if you wish to sell before then you can except that it could be worth more or less. Just like shares the value of bonds go up and down depending on economic factors. So, the bond you bought for N10k may be worth N11k or N9k when you are selling it. Just like shares, today it's up tomorrow it may be low. But at maturity (the repayment day) the government or borrower must pay you the face value. The face value is the N10k you paid them. Movement in the market does not affect what the borrower pays you.

So are bonds really like shares then? Not exactly, whilst both are investment securities they are different in their nature. When you buy shares, you buy right to earn a dividend of a company. Meaning that you only get dividends when the company decided to pay you. For a Bond, the borrower or issuer (that's is the Government or company) MUST pay you interest (coupon) a the stated date. In other words, owners of shares are equity holders, whilst owners of bonds are debt holders.

I have often heard of yields, what is that too? Well yields are basically interest on traded bonds. In my previous illustration I explained that the government pays you a coupon of 6%pa on your N10k bond. Since we understand that bonds are tradable, supposing the value was 9k at the time you sell the bond. It then means whomever buys it will earn N600 on the N9k he paid out. Thus his actual interest otherwise called yield is 600/9000 = 6.66%. So he gains an extra .66% and still gets to get another N1000 if he decides to wait till the maturity of the bond. They often say the yield of a bond moves in opposite direction to the value. Just as above, as the value dropped to N9k the yield increased to 6.66%.

That's cheating me isn't it? Nah not true. Remember, there is an opportunity cost you may incur if you do not sell. Imagine you had a business that will probably get you twice that amount if you sell. So instead of holding on just so it gets to 10k or higher, you sell and use the money for something more tangible. Also remember that you would have collected some interest as well. And then you can simply just hold on till maturity, it all depends on your opportunity cost.

Ok now I get it! How do I then invest? Bonds can be purchased either through the primary or secondary market.

The primary market is were you buy bonds that have just been offered by the seller like the Government (just like buying a public offer). The secondary market is where you buy tradable bonds that is, bonds from the bonds market (just like buying shares in the stock market). Bonds traded in the secondary market are usually done on the floor of the Nigerian Stock Exchange or Over the Counter (OTC) through the PDMM

Bonds sold in the primary or secondary market are bought through a PDMM(Primary Dealer Market Maker). PDMM are operators licensed to buy and sell bonds. Most of them are banks like Zenith, GTB, UBA, Diamond Bank to name a few. They also have discount houses like Kakawa Discount House, FSDH who sell as well. You get the application form from them, fill it, include your cheque in full for the amount you wish to invest. You can invest as much as you can, from N10k to N1b depending on your capabilities financially. But the minimum is N10k and multiple of N1k thereafter.

The bonds purchased are confirmed through issuance of depository or issuance of certificates. The depository is the CSCS (Central Security Clearing System) an online storage for securities such as shares and bonds.

How do I get my interest? Interest on Government Bonds are paid Semi annually.For example in June and December or in January and July. Payment is through issuance of cheques or warrants, similar to the dividend warrants you get for shares.

Also note that interest rates can be fixed or floating. Fixed means when they say they will pay you 6%pa then it is 6%pa you get till the end if the maturity. Floating means they may pay you an amount that is linked to a are that moves with the market. For example they might say Nibor 8% plus 2%. Meaning the rate is benchmarked o. The Nigerian Interbank Official Rate (Nibor) of 8% plus 2%. The Nibor is a rate that banks use to lend money to each other and it always changes in response to market conditions and is thus the floating rate.

Full post: http://ugodre..com/2011/09/investing-in-nigerian-bonds-101.html

Do you have anything to add about bond investing in Nigeria? Let's share and learn from each other.

Currently I am not working with NNPC and Co only when I got a job there Seun i should have much to say on this bond of a thing, however my monthly pay check is due for taking care of myself and those around, for saving my neck is yet to grow.

Mr, Cork:

Ask James Bond!

RTFLMAO you are a condemned clown oh condemned clown

Bonds are simply long term assests/financing that provide stable yields over a long period of time. They are usually issued by government bodies or private enterprises with good rates of payback.

Bonds ars usually more beneficial if large sums are invested as theyiedls prove significant int he long run which is why pension funds and other entiteis that are able to invest large amounts of money usually use these vehicles to obtain stable yields.

Hmmmm, interesting. I've played the stock market for a while now. Maybe its time to move to bonds once this bearish run in the market is over. Those bonds losing value and gaining yield sound like a very good prospect , but nobody should touch any bonds that have ties to Greece o.

e.dynasty:

RTFLMAO you are a condemned clown oh condemned clown

Amazing you find what he said funny, both of you should be tied up in bonds.

In a nutshell. Bond is just like a loan. A country,local government,etc issues bonds to raise funds. Depending on the conditions of the loan, the borrower is supposed to pay an interest for a fixed date to the creditor(holder of the debt security). A country's financial health determine how valuable her bond is. If the borrower fails to meet up with the obligation of the loan contract as in repayment with the specified interest, investors looses confidence in the ability of the country to pay its debt and therefore the value of the bond depreciates and thus affects the economy in general.

I suggest you get more concrete and detailed information by researching more from academic sources.

Mr, Cork:

Ask James Bond!

I wonder what u will look like, craze

And when government fails to pay (I have in mind Greece, Iceland, Spain, Italy and USA?), eg, governors TAKING BONDS MONEY ABROAD to pay their 'children's school fees', how would I get my money back after ten years? And when governors insist they don't 'HAVE THE CAPACITY TO PAY', where will I run to?

porka:

And when government fails to pay (I have in mind Greece, Iceland, Spain, Italy and USA?), eg, governors TAKING BONDS MONEY ABROAD to pay their 'children's school fees', how would I get my money back after ten years? And when governors insist they don't 'HAVE THE CAPACITY TO PAY', where will I run to?

Bros, that is the risk you undertake and why you also gain if everything goes according to plan.
Nothing ventured, nothing gained. You can hide your money under your matress instead or dig a hole and hide it underground since the banks can also fail if you put your money there.

So say Nigeria breaks up, who gets to refund my money?

To add to my earlier post. I don't think Nigerians bond would stand a chance. Even if investors were to invest in Nigerian bonds, they would demand much higher interest rates. Because, the Nigerian economy is not fundamentally strong, the currency is not stable, shadowy account reports, budget deficits, rampant corruption, instability, lack of security, flawed judicial system influenced by bribes and cronyism and many other factors that will make a prospective investor think twice. Countries with the opposite of the factors I mentioned above would attract investors even at low interest rate.

porka:

And when government fails to pay (I have in mind Greece, Iceland, Spain, Italy and USA?), eg, governors TAKING BONDS MONEY ABROAD to pay their 'children's school fees', how would I get my money back after ten years? And when governors insist they don't 'HAVE THE CAPACITY TO PAY', where will I run to?

Nigeria is not Greece, Italy, or Spain!  those countries are within the Eurozone and cannot print money to pay back their debts as inflation within the Eurozone is controlled by the ECB. . .those countries would have to generate revenue and stimulate growth to pay back their creditors

The USA has not defaulted and the US treasuries continues to be a risk free proxy even after the downgrade!. . . .the US can always print money to pay back its debts!

Nigeria can always pay back it's bondholders, the only risk being that if the country gets so broke, and it results to money printing, inflation will likely wipe out the yield on your bond and at the end of the day, you are left with real losses on your investments.  This risk of course is priced into the bonds themselves and will determine how much you ask for in terms of rates.

@violent,
Thank you sir/ma, what about the second question? When they 'dont have the capacity to pay' a la minimum wage,

@violent, Sir/Ma, do Nigerian companies and state governments print money too?

One of the advantages of investing in bond is that u are sure of getting your coupon when it is due.

The problem with the Nigerian bond market is that it is not for small investors.

You'll need to have up to 100 million naira as a minimum for a start, even if you have this money, the available bonds aint enough for the big boys so there are no crumbs falling any where for you to feed on.

Plus, once you invest in govt bonds, there is no story as default except the centre stops sharing revenue to the states.

@poster, it is a great topic and i can't wait to read the views of finance seniors in the house.

Am intrested,hw wil i locate ur office 4 one on one talk.reply my email adress.willis2k9@yahoo.com

willis2k9:

Am intrested,hw wil i locate your office 4 one on one talk.reply my email adress.willis2k9@yahoo.com

Who are u referring to.

porka:

@violent,
Thank you sir/ma, what about the second question? When they 'dont have the capacity to pay' a la minimum wage,

porka:

@violent, Sir/Ma, do Nigerian companies and state governments print money too?

The federal government will always pay you your money back, they can do so by printing more money or raising taxes, for this reason, you get a small amount of interest on your money, although normally higher than the savings rate.

Corporate organizations cannot guarantee to always pay you back your investments in full, for this risk, you get a higher amount of interest on your money, much higher than what the feds is offering. If companies find themselves in a situation where they cannot pay pack their debt holders, they can always approach the stock market to sell stakes in the companies.  But usually, once a company finds itself in a situation where it cannot afford to pay creditors, no one will be willing to by its stakes, and existing stakeholders would rather much be selling, the comapany loses share value and in many cases declares bankruptcy!. . .when this happens, it's asset will be put on sale at market value and the cash raised will be used to settle debt holders.

State governments always have the state's resources as collateral!

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Bonds are as safe as houses (thats if houses are still a good investment going by all the sub-prime wahala). With government bonds you are always onto a winner because the government will always pay up. It is only in rare situations like a never ending war like in Somalia where there is no central government that your bonds may not be repaid. Even the PIIGS countries including Greece must pay up bonds when they mature. The default you hear about in Greece is more complicated than ordinary bonds.

@Seun, thanks for this thread. You all should know that Nigerian Bonds are one of the most attractive and safest in the world for local and foreign investors. One could start by buying treasury bills (3,6,9 or 12months) if you want to invest. After building your capital base, you could go for a longer term investment by buying bonds. One majour factor that will never make a poor man get rich is FEAR. Some people have never invested in Nigerian bonds or treasury bills, they are already giving up to fear by asking, what if Nigeria breaks-up? what if the govt fails to pay up? what if that, what if this happens? We should not allow the bad things happening in Nigeria to blind us from seeing the good opportunities.

thx boss, i really do appericiate your post,

@Seun, thanks for this thread. You all should know that Nigerian Bonds are one of the most attractive and safest in the world for local and foreign investors. One could start by buying treasury bills (3,6,9 or 12months) if you want to invest. After building your capital base, you could go for a longer term investment by buying bonds. One majour factor that will never make a poor man get rich is FEAR. Some people have never invested in Nigerian bonds or treasury bills, they are already giving up to fear by asking, what if Nigeria breaks-up? what if the govt fails to pay up? what if that, what if this happens? We should not allow the bad things happening in Nigeria to blind us from seeing the good opportunities.

There are 5 level of invetors. Viz Level 1 The zero financial inteligence investor. They ve nothing to invest and spend more than they earn. LEVEL 2 SAVERS RE LOSERS. They put their hard end money in a savings account beliving that the bank will pay them interest. The ponzi scheme banks take your money give out to your brother on loan and charge him 25 percent, and give u 2 percent interest and steal back the interes in the name of service chages, ATM chagess etc. LEVEL 3 THE I AM TOO BUSY TO INVEST LEVEL. This fellow often a well train professional is too busy to take sometime to learn about investing. Hence when he sees initial public offers, bunds, stocks etc he ignorantly jumbs into it and sink his hard earn money to become an ordnary share holder. Pity, pity my brother. Example DOctors, nurses etc etc he ignorantly jumbs into it and sink his hard earn money to become an ordnary share holder. Pity, pity my brother. Example DOctors, nurses etc

Donbrig:

One could start by buying treasury bills (3,6,9 or 12months) if you want to invest. After building your capital base, you could go for a longer term investment by buying bonds.

Please, i am interested in investing in the treasury bills, how do i go about it? Please, if you have any information regarding this, you could kindly send me a mail mailay2day@yahoo.com

LEVEL 4 THE I AM A PROFESSIONAL LEVEL. Self employed  example dentist, optician, real estate developer, plumber, etc. They usually become financially comfortable not not stupendiously rich.                          LEVEL 5 THE CAPITALIST. This are the richest peopple on earth. They practice monopoly. They take your hard end money from thos usless BUNDS SEUN is asking u to buy, turn it into billions over nigth and pay u peanuts after 10 years. HELL, i will never give my hard earn money to any already made billioniare like RAMON DOkPESI etal, like when i bougth AIT shares or the ever unstable govt in the name of bunds, shares, mutual funds etc. There are all ellaborate  PONZI SCHEMES. Aka legalised crime. I dont even keep cash in my savings account anymore. I use my hard earn money to buy cheap plots of real estate in the surburd of my town. One day development will get there, i will sell this land and i too will smile.  Aka legalised crime. I dont even keep cash in my savings account anymore. I use my hard earn money to buy cheap plots of real estate in the surburd of my town. One day development will get there, i will sell this land and i too will smile.

Fellow naira landers pls learn the act of investing. It does not take much. If you do u will be the one looking for loans and not u beging to give out your money, for good debt make the rich richer.

@ojubi. While it is good to buy land and resell later is a good investment strategy, it also has its risks. What if you buy a fraudulent land? You can loose money from property investment too. My advise is that you should diversify your investments. Dont put all your eggs in one basket. A little of this and that will make better investment sense. I just bought #10m worth of FGN Bond maturing in 2016 with 11.49 yearly interest. Every 6 months I get a cheque of #574,500. Those interested in investing in FGN Bonds should contact Vetiva.

@omaojo1. You only require #100m minimum for State Government Bonds. For FGN Bonds, the minimum is #10,000 and multiples of #1000 therefore.