₦airaland Forum

mcci:
Please help clarify. Would the guy who bought at N90 get 9M or 10M at maturity?

Since the guy bought 100,000 units, with each having a face value of N100, he will get 10m upon maturity.

Calebbold:
Your explanation would have been the case if most of the units for sale is #100 per unit or something below.

Just realized that the units for sale is usually #1000 per unit.

Not always 1000. Make your findings. And what does it matter?
All you need do is use 900 and 1000 where I used 90 and 100.

Even at 100,000 a unit, the analysis holds still.

There are lots if bonds with N100 face value though.

akinola98:
@awesome
Thanks for ur explanation so far but what is the difference between a coupon rate and yield
I see these two terms being used at secondary bond market for the same bond

Bonds are kinda sold in units with each unit having a face value.
so if you buy a 15% APR 2023 FGN bond with 10m at its original price, you'd be having 100,000 units of the bond, and since the coupon is 15%, your annual interest would be 1.5m

Now when you buy at the secondary market, you often don't buy at the original unit price. You may get to buy at say N90 per unit, which implies that you'd only be paying 9m to get thesame 100,000 units.

But at the end of the year, both you who bought at 9m and the other person that bought at 10m, you'd each get 1.5m as interest, because you hold the same number of units. But while his own yield is 15%(1.5m on 10m input), yours is 16.67%(1.5m on 9m input)

So coupon rate indicates the rate at which interest is paid on a bond based on its face value, while yield indicates the actual rate of returns to an investor.

The coupon rate is always indicated in the name of most bonds, and it doesn't change throughout the lifetime of the bond.

Only changes in purchase prices bring about changes in yields to bond investors.

Bonds bought at prices below their face values have higher yields, and vice versa.

Kindly ask for any further clarification if....

Liljel:
The global minimum principal that is allowed to purchase an Eurobond is $200k but houses and banks have their way of purchasing for clients with lesser capital. They either make a pool or trade on a buy back .

Just as banks helped us get around the 50m T-bills hurdle. I wish they'll do much regarding this $200k. $10k would make them more accessible.

Liljel:
Depends on the cooperation offering it. Usually you bid to the company or its delegat but note you have to make your due diligence and ensure such coy can fulfill its obligation at maturity and the longtivity of the coy. Recently visionscape offered bond at 17-20% effective yield.

Thank God for the rating Agencies. I may be skeptical on any bond with a rating below B+, but I'd be pretty much comfortable with those having B+ or higher.

I know ratings can be manipulated, but I don't think such practice is really prevalent.

Another gauge, is if most asset managers and PFAs are buying into a bond, it'd spell some more comfort for me.

That Visionscape bond, can you give us more info on it.
When did the auction take place?
How could retail investors like us have participated?
When/Where will it be listed,
What funding support do they have from the Lagos state government. (They're the clean Lagos initiative guys right?)

Sach:
Hi all, I tried to make this point on the tb thread, my thinking and (one time experience) is that unless a bond is just being issued for the first time, one may not be able to obtain it at face value. Any rollover issue of the bond or obtaining at secondary market (stock exchange) is usually at a premium (might not always be the case though).I will still wait to learn from all your findings.

Sure.
The probability of buying a bond at its face value is the same as the probability of buying secondary market T-bills at their original discount rates( not so likely)

But secondary market bond purchases don't always happen at premium prices. Look at the snapshot on the previous page of the past auction's result, the 12.75% FGN APR 2023 bonds were sold at a discount (yield at 13.5%). However, the two other bonds were sold at mild premiums.

Jessglam:
I enquired from my account officer at FBN about the Eurobond minimum investible amount and he said its $100k

Thanks for the info. Could you please ask for the minimum for FGN bonds?

Agbaletu:
That's serious! It seems Eurobonds is not meant for the hustlers.

Well thank God their own is lower. As more people post updates, we may find a place where they'd take our $10-50k.

RabbiDoracle:
Fabu.
What year was that? Lord Luggard era?

Me I'm thinking "what naira is that? was there naira before 1973?"

Agbalowomeri:
My brother all these data you are quoting must be like 40 years back, certainly cannot be from the 80s upward

This is how I see it:
40+x years ago,
A man earned N1.23 monthly, gave wifey N0.5 for upkeep, and wanted N 200 for retirement.

Multiply through by 1,000,000

A man earns N1.23m monthly gives his wife 500k for upkeep and wants N200m for retirement.

Doesn't really seem like anything has changed.

People reminisce over past purchasing power of the naira, as if the much of it we earn today was what people earned in the past.

If the average annual salary of a 40-year old today buys just one brand new car, I'm sure the case was pretty much the case 40years ago regardless of numbers involved.


A similar case is folks salivating over a $15 an hour wage they hear about as if their expenses would be incurred in naira.

GODAKPAN:
This is not bank related, got it from DMO website. Even if they vary the margin should not be farther than necessary like 100k which is not bad. Tbills minimum is at 50m so banks only help bring investors together hence their rules. They cannot take minimum above 50m likewise in bond, they can't take the minimum above CBN set point. Correct me please if my thoughts are wrong. Am still learning from people like you poop. Thanks

Sure, Low threshold is what we want as retail investors.

Also, given the long term nature of bonds. Easy access to the secondary market is what we seek.

Talking about the secondary market. I want to point out the following:

1. To trade bonds on the NSE, you need an account with a dealing member (a broker that is)
I'll try making bids for some bonds on the NSE this new week just to determine the accessibility and liquidity levels of the NSE bond market. If this works out fine, it may be better to buy here than through banks, basically for easy entry and exit. Only downside would be that the juiciest bonds may not be listed or not have offers. Also, one would still need the banks and discount houses for purchases at the primary market bond auctions.

2. To trade bonds or any other instrument on the FMDQ OTC, you need to be a member. Their membership is in diverse categories, but I think Individuals can only join as affiliate members. The current members are few and mostly institutions. Asset managers, PFAs, banks, discount houses, and the CBN.
If you were to trade an instrument on this exchange, you'd most likely be buying from or selling to one of these big guys, and transaction values may have to be in billions.

Besides, the application form for being an individual affiliate member costs over 100k, and it's not refundable. And you pay yearly membership fees that exceed 250k. Despite these fees, you may yet not get to trade every instrument on the exchange either due to having limited access or having limited funds.r

So what I'm thinking is if I have an account with one of these institutional members, perhaps I can get them to trade bonds on this exchange for me for a small brokerage fee.

3. The interbank market. First I'm not so sure this market exists or if it's accessible to retail bond investors. But if it does, and is, I expect its workings to be like that of T-bills. Meaning that to buy, you approach your bank on any business day to pick from available offers, and to sell, the bank buys from you at a higher yield, or the prevailing market yield.

Kolping:
Oh ok.

Yes, I agree. One should target investment that can yield at least 500,000 Naira a month as coupon payment.

40m in bonds at 15% coupon will return 6m yearly. That's 3m every six months and 500k monthly.

And as long as you're willing to hold the bonds, rates won't fall ( won't rise either though)

Agbaletu:
200K$ is a lot of money.
Can one invest in Eurobonds with $ dom account? There is a need to know the current minimum amount they accept.

You should be able to fund a Eurobond investment from your dorm if your dealing through a bank. However if it's through a brokerage or investment house, you'll have to transfer the forex.

And lest we forget, the $200k is just for one firm. There may others that'll take from $10,000. I'll make findings and give updates.

Kolping:
I think Eurobonds is targeted at foreign institutional investors. For a Nigerian to have $200K in his/her dom account, it will likely attract the attention of EFCC because the bank will have to report it.

I think it's only a lump deposit or transfer that exceeds $10,000 that gets reported to the Financial Intelligence Unit.

In the long term, our aim is to have much more than the 200k.

Kolping:
That's a lot of money for an individual.

Yet the yields are less than 8%. Its biggest positive is the shield it offers against local currency volatility. Dorm accounts offer that too but with little or no interest earnings.

Kolping:
Ok. Good. I'm interested in FGN Bonds and Eurobonds.

I once learnt that the minimum investment for Eurobonds with Investment One Financial Services is $200k (N72 m).

I'm sure with time, we'll find out more about other investment houses.

GODAKPAN:
Printed out both forms and it's stated clearly : savings Bond, from 5k to Max of 50m and FGN bond is minimum of 10k and no max

I guess we'll have to contact each dealer to be sure of their specific rules.

Remember even when T-bills minimum was 10k, Zenith wouldn't let you buy with less than 1m.

Kolping:
Note that there is already a thread for FGN Savings Bond opened in March 2017.
https://www.nairaland.com/3658395/fgn-savings-bond

This thread should be a "FGN Bond".

We want to do Eurobonds, State government bonds, and especially corporate bonds too.

So I was on the phone with a rep from one of the PDMMs (Stanbic IBTC) this morning.

I asked her for the procedures for buying FGN BONDS, saying emphatically that I meant FGN BONDS and not FGN savings bonds.

She put me on hold for about 5 minutes.

Thereafter she resumed the call to tell me that all I needed to do was pick up an application form from my relationship manager, fill up and submit.

I already figured that out based on my experience with T-bills purchases.

What I actually wanted to know more was their threshold. So I asked "what's the minimum investment I can make"
She responded by saying "N5,000.00"

I reemphasized to her that I was inquiring about the regular FGN bonds with 5 ,10 year tenor and not the savings bonds. I also asked if she could reconfirm as some changes were made to bonds investing last year, she said again "the minimum is N5,000.00"

I just concluded that perhaps all she did while she put me on hold was read up some outdated stuff, as against putting a call through to someone in Treasury that I expected.

Anyways, I'll make some more calls, and Gaverelino123 has promised to visit his bank next week. We await his feedback.

I'll try putting up the phone contacts of some of the primary market dealers so some other forumites can also try reaching them.

yields of some bonds on the FMDQ

results of the last PMA.

Yields at 13.5% versus 10.7% T-bills discount.
For a fair comparison though, 10.7 T-bills discount has a yield of about 12%. but that extra 1.5% on bonds may be worth it still.

Why do I consider this thread timely?
At 10% discount, T-bills aren't anymore as attractive as they used to be. Stock market? Not the right time now. Yet I saw a bond with a 17% yield and another with a 19% yield on the FMDQ's daily quotation list last week. So I wanna find out if these instruments are accessible, so I don't miss out on available opportunities. Right thinking shey?

In the secondary market, bond prices and yields are inversely proportional. We'll have a clear understanding of this as we move on.

beyolah:
Thanks for the suggestion.
Like you mentioned, our aims definitely includes maximising the returns on our investment portfolios.

Here are some ideas
1) Investing in bonds
2) Investing in FGN Bonds and others
3) Investing in every kind of bond
4) Bond investors

Which do you think would be most suitable?

I'd go with 4, maybe something like "bond investors meet here" or "bond investors hub" or something else similar.

1. FGN Bonds. Tenors are often 5, 10 and 20 years. There are also 7 year FGN bonds
Primary market auction happens monthly often the 3rd or 4th Wednesday of each month.
Bids can only be made through the primary dealer market makers which are mostly banks and discount houses.
Since 2017, the new threshold for participating in a bond PMA has been set by the DMO at 50m.
What I don't know yet is whether the PDMMs have ways around that as with T-bills.

Secondary market:

Buying a 20 year bond and having to hold to maturity can be quite scary. A lot can happen in 20 years right?
So early termination is much possible with bonds. A 20-year bond can be resold after just a few days of purchase.
The NSE and FMDQ OTC and maybe interbank market too are the secondary markets for these instruments.
Tbe liquidity levels as well as transaction thresholds in each of these markets I don't know, but I trust experts that'll come here to help with those.

As with T-bills, apart from earned interest, capital gains also provide another income form on bonds. This happens when a bondholder buys at a high yield and sells at a lower yield.


Coupons, yield, and bond prices are other things I'd like to touch in my next post. Also for the other bond forms I'd like to mention what I know about their primary and secondary markets.

Welcome all, to this awesome thread.

Many thanks beyolah for opening this thread.
Perhaps I could suggest that we modify the topic to imply a broader scope. FGN bonds are just one form.

I'd also like us to consider:
Corporate bonds (some currently have yields above 17%);
Eurobonds;
state government bonds;
and bond mutual funds.

Our aim I guess would include maximising the returns on our investment portfolios.

Chibuking81:
What I posted since morning, you are just seeing it now, hope you are not been trap by Mr bear?

Or are you one of their agent?

For FPIs already holding naira assets, gains on the naira are gains to them. It's only the ones coming after the currency's strengthening that'll have their funds worth less.

There was a mix up in your earlier analogy sir.

Godisfaithful:
I wish so sir but this is a fantasy...and with this current leadership I doubt it. Sir, don’t let anyone tell you salt is the same as sugar because they look similar

It will happen for sure. About leadership, those handling the fiscals may have to change, but I'm pretty much comfortable with those at the monetary helm. Not saying they're perfect, but at least from what I know, they're the only ones who've ever been able to double the nation's forex reserves during their term.

Good thing for the index is DANGCEM was still relatively spared by this week's bear. otherwise YTD would have been sub 1%.

Even if someone sees this as a good entry time, I think next week may even be better, and the one after perhaps much better.

maishai:
By d time this bear finish with diamond bank nobody will fantasize about it on this forum again......Its @ this junction I fear the 1k rule

You mean the 20k rule.

Godisfaithful:
...And we think Naira will go back to 200 per $1 with these type of leadership we have in Nigeria? Anyway, let’s wait and see...

sub 300 is more like it, and I see it happening before next year ends.

onegentleguy:
Yes its much more humane to strive towards bettering our networth without being unduly pessimistic.
...it would at least show that one is patriotic with a human face and empathetic of the possible plight of others.
However, its normal that in the stock mkt most folks who are out on the sideline with their funds will like to talk down on 'things' to infest fear on those in, so they can key in. ...oftentimes those inputs are exaggerated.
Those not in (the pessimist camp) would deploy several pranks and 'pray' that the mkt drops, so they'll get in at a cheap, while those in (the optimist camp) will tour the path of believing in the opposite.
It's a normal trend that can be seeing in the market globally.
So if as a mkt player, u can not live with this 'normal' trend, then the stock mkt is definitely not for u. ...put differently, the stock mkt globally knows not what it means to have a human face !!
Remember that the pessimist camp are also a part of the mkt circle. ...so u cant exclude them.

The solution?
It calls for some disciplinary measures and emotional management.
That's why I always advise folks to have a WORKABLE STRATEGY that's just good enough to suit their investment style, goals/target and personality.
...and once u have it, just do well to stick religiously to it.
For though u won't be perfect (no one is), but u will to a very large extent know when and how to manage FEAR (with a mkt downturn) and GREED (with a mkt up rise). ...because then, u always have a clear path/guideline to follow.
That way, u wouldn't be bothered about any 'noise' from the pessimist camp !!
That's the simple solution.

There are some select clear opportunities right now in the mkt.

Regards.

From Fidelity at 4.17 to FMN at 37.40. How can merely ignoring post help? You said FMN would reach 70, isn't it the bears that have made projections such as 5th Avenue and 49th boulevard rare these days? Even the frequency of back room revelations too.

The fact is losses aren't fun especially when market is taking from you what it didn't earlier give.

Fxuser was spot on when he talked about reducing position to reduce aches. From about 9%, I'm less than 4% in currently. That's what eases it for me.