FG savings bond allotment falls 8.5% to N6.12bn despite 14% yield

The Federal Government’s retail savings bond allotment fell by 8.5 per cent to N6.12 billion in October, despite offering investors annual interest rates of up to 14.071 per cent, highlighting fluctuations in demand for government-backed investment products amid competing fixed-income opportunities.

Data from the Debt Management Office (DMO) showed that the government allotted N6.12 billion through its two- and three-year Federal Government of Nigeria Savings Bonds, down from N6.69 billion in September.

The October outcome represents a reversal of the previous month’s recovery, when allotments rose by 14.1 per cent from N5.86 billion in August. The latest figure nevertheless remains above the levels recorded in March, April, May and June.

The three-year instrument dominated the October offer, accounting for N5.11 billion, or about 83 per cent of the total allotment. It carries an annual interest rate of 14.071 per cent and matures on October 14, 2029.

The two-year bond, which matures on October 14, 2028, attracted N1.02 billion at an annual interest rate of 13.071 per cent.

Together, the instruments recorded 3,939 subscriptions, comprising 2,678 for the three-year bond and 1,261 for the two-year instrument.

The October offer ran from October 5 to 9, with settlement scheduled for October 14. Interest is payable quarterly, providing investors with regular income throughout the life of the securities.

The preference for the longer-dated bond suggests that investors were willing to commit funds for an additional year in exchange for a one-percentage-point increase in the annual interest rate.

The savings bonds are designed to provide individual investors with access to Federal Government securities without the higher entry requirements associated with some other fixed-income instruments. The government, in turn, uses the programme to mobilise funds from retail investors and broaden participation in its domestic borrowing market.

However, the decline in October allotment indicates that the amount raised through the programme continues to fluctuate despite relatively attractive nominal returns. The latest result followed a strong September performance and came after a period of lower monthly allocations earlier in the year.

The monthly figures show that allotments stood at N6.34 billion in January before falling to N5.91 billion in February, N3.86 billion in March and N3.64 billion in April. They subsequently recovered to N4.07 billion in May, N4.68 billion in June and N6.19 billion in July before easing in August, rebounding in September and declining again in October.

For the Federal Government, the retail savings bond remains a way to tap household savings through predictable, quarterly interest payments. For investors, the decision to subscribe depends on the return offered, the time their money will remain invested and the alternatives available in the wider fixed-income market.

The latest decline therefore underscores the challenge of sustaining retail participation in government borrowing even when interest rates remain relatively high. The continued dominance of the three-year instrument, however, suggests that a significant portion of participating investors remains willing to lock funds into longer-term government securities for a higher return.