₦airaland Forum

Agbaletu:
It is safe to say that based on this analysis the return does not worth it, having lost part of the principal. This bond of a thing is confusing.

You should always focus on the yield sir. Despite the loss in capital the net yield is still about 12.5 % (as quoted). That's still currently higher than T-bills.

It's often more attractive when the bond is purchased at a discount. The yield would be higher.

GODAKPAN:
If I invest 10m for the 2022 coupon, how much will be my interest annually. Thanks

Good morning to you sir.
Since the offer price of the bond is 108.57, if you buy with 10m, you'd be getting 92,106 units (10m/108.57)
Now the face value of the bond is 100 per unit and the coupon is 16.39 per unit per annum. so your annual coupon receipts would be 1,509,617.34 (16.39*92106).
This may make it seem like your yield is 15.09% (1.509m on 10m) as Spenca is suggesting.

But you have to consider the fact that when the bonds mature in Jan 2022 (3.67 years' time). The principal that'll be returned to you will be 9,210,600 and not 10m. This implies that you'll be having a capital loss of about 789400 over a 3.67 year period. This translates to an annual loss of about 215095. When you net this off your annual coupon receipts, it becomes obvious that your real annual returns on the 10m investment is about 1,294,522
Making the effective yield 12.94%

The yield quoted is 12.5%

So I'm still trying to understand why there's a difference.

But basically, you should realize that while you may be getting 1.5m in annual coupons, your real returns are not as much when you factor in the capital loss.

spenca:
awesomeJ

Yield is simply calculated as C/cp

C: coupon (in monetary value)
CP: clean price ( amount used to purchase the instrument)

The formulae you used above is similar to that of TRR.

what's TRR please?
Look at these secondary market offers posted by cooldudeng?
1. Feb 2020, coupon is 15.54%, price is 104.55, yield is 12.5%
2. Jan 2022, coupon is 16.39%, price is 108.57, yield is 13.35%.

Could you please help us know how they arrived at those quoted yields.

I suppose a bond only trades at its clean price either at issue or on a coupon payment date right?

I'll be glad to learn from any contribution you make at helping us see how those yields were arrived at. Thanks

cooldudeng:
The going rate is influenced by interest rate

Take for example, let’s assume I bought a bond 5 year bond at say 12% coupon rate. When interest rate goes up say from 200bps (+2%), this wold likely impact on other investment vehicle say T-bills and newly issued bonds making them have a higher yield or coupon rate. Hence, investors will shun existing bonds and a bond holder that’s willing to cash out will have to sell at a discount so the effective yield can be attractive.

That’s the inverse relationship I was taking about. Oga awesomeJ can add a piece to this. Me sef na still learner

There's nothing else to say. You've said it all.
Mean while. you still have to finish the number crunching to see how the quoted yields are gotten. You are good with numbers yourself, and more good heads- they say-are better than few.

JustBasic:
Firstly, many thanks for your meticulous explanation. I have come to be an avid fan of your posts on this and the TB thread.

Regarding the calculations below, it is nicely done but I'm having issues understanding where the 80 in the calculation of the total coupon receipts comes from. The only related info relating to 80 is the one below on the previous page by @kolping:

........ However, the DMO displayed a stingy streak as it elected to only allot 80%.

Is this the origin of the 80 in your calculation? Can you please shed more light on that?

Many thanks and best wishes.

Thanks for the nice words.
This is where the 80 came from:
Face value of the bond is 1000,
Coupon rate is 16%
this means the coupon receipt on each bond unit is 160 per year (16% of 1000)
Since coupons are paid twice per year, each coupon payment would be 80 (160/2)

Seun:
HardMirror, you are at risk of actually convincing Christians who need IVF not to try it based on your ironic argument. This is quite dangerous.

When there are more informed friends and mentors the Christians take their influence from, who says hardmirror's opinion counts for anything?

Egie4real:
Hence from your explanations, it is always more profitable to purchase bonds at the secondary market?

I have to mention that the reason it seems my analysis of secondary market bond purchases tend to imply a higher yield is that I've only been considering bonds purchased at a discount.
If the purchase price were at a premium to the bond's face value, the yield would be lower. The instance cooldudeng gave in his post above, buttresses this point.

evalasthn:
Thank you so much guys for this thread
Is their any better bank investment than this?
Do you guys think this is really a good investemt because the marketer that sold this to me made me understand that its the best i cant get out there.

exi
I plan on increasing higher than 3m but after reading this thread am dragging my feet again

With regards to difference in yields, bonds currently beat MMFs by less than 1%. So given the redemption and subscription flexibilities with MMFs, switching to bonds may not be worth the stress for now.

But a time will come when that difference reaches 3-5%, then bonds'll certainly be best.

cooldudeng:
Thanks! Would be looking forward to it. What is the offer % about?

So I've used the figures you posted earlier, but the yields are got are not exact. I thought perhaps the figures were published on a date different from my assumption, so I decided to use figures from the DMO's site, still, there's a slight difference.

So I there's still something missing from my analysis. Maybe I'll find it, or maybe someone else here will. The latter is more convenient for me.

So case 1:
FGN 16.00 FEB 2021 bond to be purchased in May 2018 at an offer price(dirty) of 950 per unit. What's the yield?

Things we already know:
Face value of an FGN bond, F= 1000.
Coupon payment dates will be in August and February of each year.

Thus, total number of coupon receipts to maturity = 6 ( Aug'18, Feb'19, Aug'19, Feb'20, Aug'20 and Feb'21)
Total coupon receipts = (80.00*6) = 480 (at 16%, coupons'll be 80 every six months)
Total capital gains = F-P (1000-950) = 50.
Term to maturity= 2 years, 9months (May'18-Feb'21) =2.75yrs.

Annualized coupon = 480/2.75=174.55
Annualized price gains= 50/2.75=18.18
I.e
C=174.55
G=18.18
Therefore
yield y= ((174.55+18.18)/950)*100%
y=20.29%

cooldudeng:
Thanks! Would be looking forward to it. What is the offer % about?

So this is what I've come up with so far:
The yield y of a bond is:
y=((C+G)/P)*100
Where C is the annualized coupon receipts,

P is the purchase price.
G is the annualized price gains(capital gains) gotten from F-P, where F is the face value.

To get the annualized coupon payment, divide the total expected coupon receipts by the term to maturity (in years)

To get the annualized capital gains, divide the total gains by the term to maturity (in years)

I'll use two examples in my next post to illustrate-a hypothetical case, and a real instance from results published on the DMO's site.

You may need to read this post again alongside the examples in the next post.

Thank you.

For those of us asking about how to start,
i've been trying since Tuesday to reach Vetiva Capital. Phones keep ringing, nobody picks up.

01 270 0657
01 270 0658
01*271*9570
Those are their phone lines. Anyone else could ring them, and help ask.

I'll be at an FBN branch later today as well, maybe I'll find some useful info.

cooldudeng:
Thanks! Would be looking forward to it. What is the offer % about?

The offer (%) is the quoted yield on the bond.

For instance, the Feb 2020 bond has a coupon of 15.54%, but a yield of 12.5%. The implication of that is. For someone who is buying at that quoted yield, his annual returns would be 125,000 on every 1m investment, because he bought the bond at a premium price (104.55) whereas for those who bought at the face value (100), they would get 155,400 on the same 1m investment.

sefani:
Nice thread.
can someone be kind enough to explain how I can buy an FG bond of 100k from the secondary market for 5 years and what my interest per year will be.
I am a newbie please

For bonds, what you should really ask is what your returns would be.

Let's say, you buy a bond with a face value of N1000 and 16% coupon at a 12% yield, you will get interests of 160,000 yearly on every 1000 units you hold. But what you'd pay to get those 1000 units would me more than 1m (which should be the normal cost)
You'd rather be paying 1.33m to get interest of 160k per year.

So if you could get bonds with 100k at say 13.5% yield, your returns would be #13500 every year.

daewoorazer:
Please experienced peeps,

Which is the best?
Eurobond, FGN bond et al??

I’m new here and this sounds promising

My personal opinion is:
When the naira is stable, and outlook seems favourable for it, I'd choose FGN bonds, because of the superior returns. However when oil prices start taking a dip, our output levels suffer considerable declines and reserves and braking new lows, then I know a currency trouble is imminent, so I'd choose Eurobonds for their huge revaluation gains prospects.

Every investment vehicle has its right season.

ImperialCovfefe:
April-May-June are part of second quarter.

How long have you been viewing T-bills calendar?

There are things you don't have to tell an adult. I've known the meaning of quarters since basic school, don't you think?

Today's auction was the last for Q2 2018. For the first time in the entire quarter, we witnessed a rise in stop rates.
I am optimistic about the coming quarter.
I expect further rises at the June 13th auction.
By the way, thank you Yinka2011 for the quick up date. God bless you.

cooldudeng:
The below rate schedule was culled from an investment bank mail as at last week. It will be great if someone can help share more light on the below

Bond Tenor (Years) Offer (%) Coupon Rate (%) Implied Price (N)
Feb-20 2 12.50 15.54 104.55
Jul-21 3 13.40 14.50 102.71
Jan-22 4 13.35 16.39 108.57
Mar-24 6 13.40 14.20 103.11
Jan-26 8 13.30 12.50 96.18
Mar-27 9 13.40 16.29 114.64
Jul-34 16 13.20 12.15 93.01
Mar-36 18 13.25 12.40 94.19
Apr-37 19 13.20 16.25 121.01


Using the Feb - 20 bond as an example, I would like to really understand how the bond work

Below is my basic understand and do correct me if I'm wring

" This is a bond that must have been issued at a unit price of N100 on March 2018 (since tenor is 2 years)
" Coupon rate is 15.54% meaning, N15.54 will be paid in a year per each unit held. This I believe will now be bi-annually at N7.77 with the first payment due in August ( 6 months after)
" For one to buy into it now, you will have to buy at the implied price of N104.55 per unit, hence at a premium

What then does the offer (%) mean? Are all my assumptions above correct?

All your assumptions are very correct sir.
The offer (%) should be the yield to maturity.

I will try to crunch the numbers tomorrow to show how the implied price was obtained.

opomulero:
To my own understanding, he wont get 10M he will get 9M.

Reason:
U used 9m to buy 100,000 units while another person had bought the same 100,000 units for 10m.
Now assuming both of u have 10m , u dt bought at 9m is at an advantage cos u still av 1m to use for urself but u will get back ur 9m at maturity.
Its just that both of u have 100k units which have different naira values.

If there is any other opinion contrary to this abeg tell me o, we are here to learn

That's not how bonds work.
You should know that 2 things remain constant throughout the lifetime of a bond:
1. The face value per unit;
2. The coupon rate.

So as long as you have 100,000 units of a bond with a face value of say 100, and a coupon rate of say 15%, you will get interest of 1.5m annually throughout the lifetime of the bond, and you will get 10m on maturity regardless of the price you bought at.

Think of it this way, someone promised to buy one concrete block for 1000 in 5 years' time. As long as you can get 10,000 units of those blocks (at whatever price) you will be getting 10m off the sales.

The implication of someone buying for 9m and getting 10m maturity is that his yield is higher (actually more than 16.7%). The capital gains forms part of the yield. I didn't include that earlier.

Yield to maturity, and accrued interest are two major factors that determine the price of a bond.


Some say bonds calculations are clumsy, I say they aren't. We've just not gotten used to them enough yet.

wura2020:
I bought it 5 years ago at the primary issue. That time issuance was under CBN. It was advertised in the newspapers and you are advised to collect application forms from any bank, stock broker or any investment coy like Vetiva. After filling the form, you submit the apllication form to your bank. You state the amount you want to invest and the interest you expect . After auction, the interest rate that wins the bid will be allocated bond.

The interest on the bond is payable twice yearly unfailingly into your account by Federal Government of Nigeria, through the Debt Management Office.

Thank you so much.

C4Ltd:
can gtb be said to be the best for bonds same way as stanbic/ fbn were for Tbills?

GTB usually has one branch, in such cases would it be okay to deal there

We'll only get to know as more people share experience.

wura2020:
My bond matures on 31st May,2018. Do I have to fill a form to claim my principal or it will just drop into my account? Will I be paid the half yearly interest along with the principal or only the principal?

No, you don't have to fill any form. Your funds will automatically hit your account.

You will get the last interest payment alongside your principal on maturity date.

Meanwhile, could you please share with us things such as
When you bought, the bank you bought through, your coupon rate, the tenor, and how the interest payments have been over the years.

Those of us who don't yet have the practical experience would love to learn from yours.

Gavrelino123:
Minimum of 10k.........Yes you can tomorrow,
just visit your branch or email your account officer...they will tell you what is available @ the moment..
For proper effectiveness and professionalism,its better transact with head office...!
I went straigh to head office,because i expected cunning response from my account officer.

Thank you so much Sir. God bless you.

Gavrelino123:
My findings on Federal Government Bonds.
I was at GTBANK head office today...
The elucidations below are my fact-findings
1.,The 50Million stipulated by DMO on Federal government bonds is for those who want to bid their own rates.
2.,Can one get secondary market tenor..?
Yes you can,but you will have to go with the Bank rates.
The bank purchases in bulk and sells in bits to retail susribers.
Hence,profit orientation.
3.,What is the minimum amount one can suscribe on?
Minimum of 10k and it varies on units,but some banks will peg their minimum as 10k,50k,100k, 500k,or,1m in variant of the bank.
4.,Can one liquiate federal bonds..?
Yes you can,but its not as liquid as TB....
It's a capital market investment,hence,it has to stay for a particular period of time before it can be termed liquid.
Note; Banks are more rigid when selling Bond than TB....Liquidation make take forever depending on the demands.
She evidently,showed me some treated transactions that came from branches.
I'm open to further questions..

Thanks sir.

So if I have a GTB account, and I want to buy tomorrow, what's their minimum, could I get offers from them tomorrow or do I have to wait for the next auction. thanks again for the efforts.

ahiboilandgas:
do 3 or 6 months

Yeah short term now, till the crest comes near.

GODAKPAN:
Am ready for next month, please advise if I should get patient

Thank God there's still an auction this month-Wednesday. Its outcome will give us clearer outlook.
I expect rises though.

samzepaparazi:
I have one question.

If truly foreign investors are pulling out money,

The quantities traded daily are too insignificant in my opinion.

What do you think.

And i thought it was in february they/march they really left.
Even then the prices didnt drop drastically like now

Quantity traded doesn't give the true picture. Quantity on offer is what's to watch.

If bid quantities are limited, no matter how hard the FPIs try, quantity traded will still be limited.

dipoolowoo:
T-Bills Rates to Rise as CBN Intensifies Liquidity mop up
https://www.businesspost.ng/2018/05/28/t-bills-rates-to-rise-as-cbn-intensifies-liquidity-mop-up/

Thanks for this sir. Rates actually rose by close to 80bps at last week's bond auction. i pray the days of 15% yield return soon.

GODAKPAN:
simple interest is calc based on principle you brought in(ur capital), tenure u desire (time) and rate you get.

Now our primary sch formula for simple interest remains PRT.
Now you brought a small P and desires a small T and we are in a season of small R, you will definitely get a small S.I.

If you increase any of those parameters then your S.I. will increase.

Some you wi;ll understand more than me as you are in the right forum.

Quite hilarious. Small P, small T, season of small R!

spenca:
Euro bonds are priced at 100 while FGN are priced 1000.

It is pivotal to state this difference because EURO BOND is governed by global laws FGN bonds too but they have this peculiarity to Nigeria's. Most often you will see bonds quoted based on % premium or discount.

The idea is to learn here, no aggression no antagonism.

I didn't argue about the price of the FGN BOND. My post Wash n response to the person who said bonds are "Bonds are units in 1000". That's obviously not always true.

The guy who made the first reference to the price too. He thinks the fact that some bonds trade at 1000, changes anything. That's not the case.

The snapshot below shows FGN bonds are in 1000 but the state and other bonds are in 100.

We shouldn't always be quick to argue on things we're yet to make findings on. I say again that there are several bonds with a 100 face value per unit.

Liljel:
Bonds are units in 1000

All these bonds have unit prices of 100

Liljel:
well , they seek to issue 50bn worth of bond and they have done less than 50% , the last offer was on feb 26 and ended feb 28 worth of 4bn at the rate of 15.75% . The feb offering was the second trench of the 50bn they intend to offer. The bond is fully backed by LASG hence it has an underlying asset of the Lagos state treasury for 50 years. The last bond offering was not caped on any value hence i think it is open to all and sundry. I do not know when the next trench will be auctioned.

Thank you for this timely info.
However like you said, we have to watch out for their secondary market liquidity first. Thanks again.