Frequently Asked Questions on FGN Bonds
How do I invest in the FGN Bonds?
In the primary market, where new bonds are offered, you can invest by bidding through Kakawa Discount House Limited (Kakawa) or any of the other 14 recently appointed primary dealers/marker makers (PDMMs).
You can also buy and sell bonds in the secondary market where previously offered issues are traded. Again, this can be done through Kakawa or any of the other 14 PDMMs.
For further enquiries, please call 01 -2715490-4 to speak to any of our bonds dealers.
What should I consider before investing in FGN bonds?
Since the bonds are issued by the FGN, they are risk-free and so, the security of your investment is virtually guaranteed. The major factors for consideration should be tenor, and whether or not the bond will be coupon paying and if so how much? This is very important because it would affect the price at which you can sell the bonds in the secondary market.
As a rule of thumb the longer the tenor and the lower the coupon rate on the bond, the greater the bond’s price sensitivity to changes in interest rates. This means that for a bond with a long tenor and low coupon rate for instance, a 1% change in interest rate could probably result in a 10% change in the price of the bond. Thus, for investors with low risk appetite, it is better to stay with bonds with shorter tenor albeit lower yield relative to longer tenored bonds.
Upon acceptance of the bond, how long can I wait before I can convert it to cash?
You can convert it to cash immediately subject to finding a ready buyer who is willing to trade on a yield agreeable to both of you. Recently the Debt Management Office appointed 15 Primary Dealers/Market Makers (Kakawa is one) whose role it will be to make markets (buy and sell) in government securities. The system will officially take off in July 2006.
Is the interest payment on Bond accrued on yearly basis or twice a year?
The current FGN bond pays the coupon interest semiannually i.e. twice a year
How do I receive my interest payments and interest at maturity?
Interest and principal will generally be received by your PDMM and credited to your account, depending on the arrangements you have made.
What factors will determine the profitability of my bonds?
The major factor that will determine the profitably or otherwise of a bond is the prevailing interest rate that is currently applicable for a security of similar maturities.
It is imperative to note that there is an inverse relationship between bond prices and interest rates. When interest rates fall bonds trade at a premium and vice versa.
In other words, whilst selling, you will realize a gain on the bonds if the yield being offered by the buyer is lower than the coupon rate. If however the yield offered is higher than that of the coupon, a loss will occur
How can I determine the current market value of the bonds I hold?
Please visit our website to use our interactive bonds calculator. You can also contact our bonds dealers on 01 -2715490-4 for more information.
