Investing in government bonds – THISDAYLIVE

Omolabake Fasogbon

There has been an unprecedented subscription of Nigerian Government Bonds (NTBs) in recent months.

Treasury bill transactions rose to N23.75 trillion in the first four months of 2024, compared to N6.06 trillion in the first four months of 2023.

According to experts, the unusual spike is not far-fetched as it is currently one of the highest paying investment opportunities in the country.

Naturally, Treasury bills (T-bills) offer lower returns compared to other long-term investments such as bonds.

T-bills are described as discountable instruments used by the Central Bank of Nigeria (CBN) to manage liquidity in the system, usually on a short-term basis. They are believed to carry no default risk as they are issued by the Federal Government through the CBN.

They are more of a preferred platform for short-term investors given the security and upfront interest, which are non-taxable and sustainable as collateral to secure short-term loans from banks.

However, the recent interest rate increase by CBN suddenly put more attention on government bonds, more or less putting all other investment portals in the shadows. While this was the apex bank’s last resort to stabilize the economy and calm inflation, it was also a victory for most investors who were able to protect their investments and reduce the effects of inflation on their purchasing power.

Although treasury bills may look good and promising now or later, in some cases they would usually not be a good investment choice. Capitalizing on it is strategic and based on the investor’s overall intent.

For example, co-founder and COO of Bamboo, a fintech platform that facilitates investments in local and foreign stocks, Yanmo Omorogbe, said that for the average person hoping to earn extra income, it is better that they improve their financial situation and the desired investigate additional income. before dealing with T-notes.

“In general, the most important thing to remember is that you need a significant amount of capital to earn a meaningful income and that you should be comfortable with holding onto this capital for a year to increase your passive income. maximize,” she said.

On whether we should opt for saving or investing in government bonds whose returns are juicier than the former, Omorogbe, who recently led Bamboo to upgrade its operations to facilitate government bond trading, said it was not advisable to get carried away by the juicy benefits of investing at the expense of life.

However, she pointed out that an ‘ordinary saver’ has a good chance with both options, but must weigh the choice based on the prevailing situation.

“Savings products typically have easier liquidity and more flexibility than T-Bills, while T-Bills will provide higher returns than savings products. So it’s a good idea to keep short-term expenses and emergency funds in savings and then use T-Bills for longer-term investments.

“Usually, the longer the term of the T-Bills, the higher the return. So, to get the most out of T-Bills, it is best that investors buy the longest duration they can,” she further explained.

The investment analyst highly recommended T-Bills to investors looking to preserve their capital, even with the current 33 percent inflation rate.

“NTBs currently outperform all other fixed return investment options, offering the best opportunity to mitigate the effects of inflation while preserving capital.

“Investment options that can beat inflation at this time carry significantly more risk than federally backed government bonds,” she clarified.

She further explained that the drive to help Africans grow their wealth from any part of the world inspired Bamboo’s coverage of government bonds, which is currently in beta testing for a select group.

“We plan to roll this out gradually to everyone as we perfect the products to taste based on user feedback,” she said.

Omorogbe further advised that any investor looking to minimize risk would be wise to switch to the T-bill offering.

“Those with higher-risk portfolios looking to diversify their risk exposure or investors who are still unsure where to invest in the long term should consider investing in shorter-term T-Bills, which will provide them with short-term can earn a decent return while deciding on their long term. -term strategy.

“Finally, shorter-term TBills will also benefit investors who have cash they don’t need in the short term. This way they can maximize their returns instead of leaving the money unused.

“An SME could purchase T-Bills with different maturities that match his or her expectations for when they need the capital. This is an extremely low-risk way to earn predictable, decent returns. On Bamboo, companies can join our beta program from the comfort of their phone to invest seamlessly,” she says.

For seasoned investors or beginners whose trades do not align with government bonds, Omorogbe listed other products they could explore for wealth instead of leaving their money idle.

According to her, offers such as fixed deposit, Nigerian stocks and the US stock market are quite rewarding as they are available on the Bamboo app.

For example, we have a US dollar-denominated fixed income product called Bamboo Fixed Returns, which gives investors an annual USD return of up to eight percent.

“For higher risk investors, our app also provides access to invest in the US stock market where you can buy and co-own shares in global companies such as Apple, Microsoft and many more.

“Nigerian stocks are also another good investment option and will be available on the app soon.”