The Debt Management Office (DMO) has announced another bond issuance of about N120 billion for the month of July 2016. The DMO’s release confirmed an issuance of N40 billion each in bonds maturing in 2021, 2026 and 20136 respectively.
The government had in its 2016 budget presentation revealed that it planned to borrow about N1.6trillion this year with about half of that money funded from the local bond market. With JP Morgan yanking Nigeria off its emerging market bond index last year, the government will have to rely on local buyers to help fund its borrowing spree.
One of the government’s major buyers are our pension funds, who according to the DMO purchased about 34% of total bond issuance in Nigeria. The DMO confirmed this in its famous response to the yanking off of Nigerian from the emerging market bond index.
[alert-note]The increased participation of non-banks in the FGN Bond Markets. The following statistics are indicative of the level of diversification that has been achieved in the investor base: The share of Allotment of FGN Bonds to Pension Funds at the Auctions grew from 20.28% in 2010 to 33.35% in 2014. The share of Non-Bank Financial Institutions in Allotments at the Auctions rose from 7.08% in 2010 to 20.93% in 2014. DMO[/alert-note]
Unbeknownst to a For a lot of Nigerians who are pension fund contributors, their pension funds are mostly invested in FGN bonds and treasury bills due to their attractive interest rates. Many believe their pension funds are invested in real estate or more preferred options rather than being lent to the government.
Whilst buying government bonds is a great investment due to its higher yields but lower risk, pension fund contributors if left with the decision to buy bonds will probably abstain when they discover that part of the cash is stolen or mismanaged by corrupt politicians.