Bond investment

[chokit]

Bonds seems to be religated as a means of investment and something for the retirees.While in actuall fact it is not and virtually every investor should have at least have it to complete thier portfoilo,i read a book that shows how a portfolio should look like;

AGGRESIVE PORTFOLIO

Age 25 to 35 100% equity and 0%bonds

AGE 35 TO 50 90% equity and 10%bonds

Age 50 to 55 75% equity and 35%bonds

Age 55 to 65 50% equity and 50%bonds

Age 65+ 35% equity and 65%bonds.


With this i want members that are full informed to educate us on how to invest in bonds market in nigeria.

[knightofdelta]

Originally Posted by chokit

Bonds seems to be religated as a means of investment and something for the retirees.While in actuall fact it is not and virtually every investor should have at least have it to complete thier portfoilo,i read a book that shows how a portfolio should look like;

AGGRESIVE PORTFOLIO

Age 25 to 35 100% equity and 0%bonds

AGE 35 TO 50 90% equity and 10%bonds

Age 50 to 55 75% equity and 35%bonds

Age 55 to 65 50% equity and 50%bonds

Age 65+ 35% equity and 65%bonds.


With this i want members that are full informed to educate us on how to invest in bonds market in nigeria.

This is really an aggressive portfolio, but I think it should be more flexible depending on the circumstances of the individual. Some people have to be more liquid than others. Investment opportunities are rather limited in Nigeria at the moment because of the level of poverty and small number of people in the middle class who need more diversified exposure.

I know we will get there someday, meanwhile I will try and find out about bonds. The only issue is that mostly mutual funds, foreign portfolio managers and pension funds invest directly in bonds. I am not sure how easy it is going to be for small time investors.

[hispy99]

Originally Posted by knightofdelta

This is really an aggressive portfolio, but I think it should be more flexible depending on the circumstances of the individual. Some people have to be more liquid than others. Investment opportunities are rather limited in Nigeria at the moment because of the level of poverty and small number of people in the middle class who need more diversified exposure.

I know we will get there someday, meanwhile I will try and find out about bonds. The only issue is that mostly mutual funds, foreign portfolio managers and pension funds invest directly in bonds. I am not sure how easy it is going to be for small time investors.

If you can't do bonds, at least you can put your money in fixed deposit.

[nosa2]

I had a mentor who was always telling me that in developed markets you can make more money playing the bond market than the stock market, and unfortunately now that the bond market is about to emerge/explode in this country i no longer have ready access to him to get tutorials, fortunately for me i have you guys who can educate me/us on how bonds are traded thus i believe this thread has become useful. I would love us to have discussions on what to look for in bonds, how, if any, capital appreciation is made, or any good resources one can read (free or paid) etc. Thou i believe banks are really being reckless with all these bond issues, i smell money is about to made and i want the knowledge so i can grab my share.

[knightofdelta]

Originally Posted by nosa2

I had a mentor who was always telling me that in developed markets you can make more money playing the bond market than the stock market, and unfortunately now that the bond market is about to emerge/explode in this country i no longer have ready access to him to get tutorials, fortunately for me i have you guys who can educate me/us on how bonds are traded thus i believe this thread has become useful. I would love us to have discussions on what to look for in bonds, how, if any, capital appreciation is made, or any good resources one can read (free or paid) etc. Thou i believe banks are really being reckless with all these bond issues, i smell money is about to made and i want the knowledge so i can grab my share.

Originally Posted by knightofdelta

This is really an aggressive portfolio, but I think it should be more flexible depending on the circumstances of the individual. Some people have to be more liquid than others. Investment opportunities are rather limited in Nigeria at the moment because of the level of poverty and small number of people in the middle class who need more diversified exposure.

I know we will get there someday, meanwhile I will try and find out about bonds. The only issue is that mostly mutual funds, foreign portfolio managers and pension funds invest directly in bonds. I am not sure how easy it is going to be for small time investors.

It was barely a year ago I made this post. A lot of water has indeed passed under the bridge

[hispy99]

[Bonds as investments are not risk-free

[hispy99]

http://www.proshareng.com/admin/uplo...EC_11_2009.pdf

Bonds Vs Equities

[hispy99]

http://www.proshareng.com/news/singleNews.php?id=8347
UBA Bond Fund pays 15 kobo dividend

[newton]

Originally Posted by hispy99

http://www.proshareng.com/news/singleNews.php?id=8347
UBA Bond Fund pays 15 kobo dividend

Good results i must say, and with Nigeria's sovereign rating still within investment grade i'd suspect increased foreign participation soon, sure its already there indirectly though.

[knightofdelta]

Originally Posted by newton

Good results i must say, and with Nigeria's sovereign rating still within investment grade i'd suspect increased foreign participation soon, sure its already there indirectly though.

Are you sure? Nigeria does not have any foreign denominated bond yet but the current sovereign rating by S&P is "B+" with a stable outlook down from "BB-" due to banking sector problems and fiscal issues. Investment grade would be BBB and above.

[nosa2]

I just read than when a company issues bonds with a high interest rate it signals danger, it makes sense for a company like flour mills to issue bonds with rates of 12-15% given that bank lending rates (the alternative) are higher but what's getting my eyebrows raised is that banks are issuing bonds at similar rates while deposit rates on a savings account are hovering around 4% and fixed deposits are about 10%. With cheaper alternatives should we investors not be weary of the desperation being displayed by these banks to raise funds

[Waves]

Originally Posted by nosa2

I just read than when a company issues bonds with a high interest rate it signals danger, it makes sense for a company like flour mills to issue bonds with rates of 12-15% given that bank lending rates (the alternative) are higher but what's getting my eyebrows raised is that banks are issuing bonds at similar rates while deposit rates on a savings account are hovering around 4% and fixed deposits are about 10%. With cheaper alternatives should we investors not be weary of the desperation being displayed by these banks to raise funds

I am not sure there are 'cheaper' alternatives. From a Bank's point of view, a bond is simply a long term deposit (in some instances, bonds are classified as Tier 2 capital). If a bank comes to you and asks you to deposit your money with them for 5 years at a fixed rate, they have to offer you an interest rate that will will justify taking such and 'interest rate risk'.

Nigerians banks are trying to use bonds to achieve two things. First, solve thier perenial problem of tenure mismatch. Most of thier deposits are short term while most of thier most profitable lendings are long term. This mismatch cost banks treasurers a lot in interbank rates. Second, Nigerian banks want to tap in to the N2.1 trillion pension assets sitting with PFAs. These funds which the banks see (they are the Pension Custodians) being invested in low yield FGN bonds can be used by them for thier long term lending. Mind you, as the Access CEO correctly observed last year, overall deposit growth in Nigeria is at its peak. Banks can either 'poach' deposits from other banks or change the tenure of the deposits available to them.

Inspite of the above, as an investor you should be worried about two things. First, what will be the effect of these 'expensive' deposits on the banks interest margins. Two, if you are thinking of buying the bonds and believe interest rates are high, then you need not worry. If interest rates eventually fall, the value of your bond will surely rise since interest rates and bond prices have an inverse relationship (defined by the 'Duration' of the bond)

Flour Mills and Nigerian Banks are in the market for thesame funds. In the absence of bond ratings in Nigeria, there will be little justification for differences in coupon rates.

[horlads]

Originally Posted by nosa2

I just read than when a company issues bonds with a high interest rate it signals danger, it makes sense for a company like flour mills to issue bonds with rates of 12-15% given that bank lending rates (the alternative) are higher but what's getting my eyebrows raised is that banks are issuing bonds at similar rates while deposit rates on a savings account are hovering around 4% and fixed deposits are about 10%. With cheaper alternatives should we investors not be weary of the desperation being displayed by these banks to raise funds

10% bawo? you must be offering the bank some mouth watering cash for you to get 10% in current clime (i stand to be corrected sha). However, interest rates on bonds are priced higher when there is a greater risk of default...if after the bond has been issued, the risk of default gets higher (usually occasioned by a downgrade in rating), the price of the bond falls in order to get a higher yield. This has been the case with bonds in the Euro zone lately.

[c kenneths]

Originally Posted by horlads

10% bawo? you must be offering the bank some mouth watering cash for you to get 10% in current clime (i stand to be corrected sha). However, interest rates on bonds are priced higher when there is a greater risk of default...if after the bond has been issued, the risk of default gets higher (usually occasioned by a downgrade in rating), the price of the bond falls in order to get a higher yield. This has been the case with bonds in the Euro zone lately.

According to KOD, you can get 10% from some fixed deposits in a few of our banks. But my main worry is what will remain after you factor in inflation.

[knightofdelta]

Originally Posted by nosa2

I just read than when a company issues bonds with a high interest rate it signals danger, it makes sense for a company like flour mills to issue bonds with rates of 12-15% given that bank lending rates (the alternative) are higher but what's getting my eyebrows raised is that banks are issuing bonds at similar rates while deposit rates on a savings account are hovering around 4% and fixed deposits are about 10%. With cheaper alternatives should we investors not be weary of the desperation being displayed by these banks to raise funds

Theoretically no company will want to issue a bond with a coupon rate lower than the current yield on the sovereign (in our case FGN) bond. Nobody will buy it... therefore to attract investors the companies have to pay higher rates than their Government. This is because even if the Government is messed up, it can print money arbitrarily to pay coupons but companies cannot do the same.

S&P downgraded the rating outlook on FGN bonds recently for one reason, which they refused to state explicitly - fiscal irresponsibility - but they danced around lack of an SWF and the wiping out of the excess reserves.

The high yields of the banks is therefore a very good opportunity for investors to buy solid securities at attractive rates with yields surpassing current inflation rates and thus preserving the purchasing power of capital.

Investing in bonds is really a good investment to .
Everyone can invest in bonds there is no specific age limit and there is no such knowledge required .

[Niaraquest]

while I agree that investing in bonds is a good investment especially for reason of diversification and for those with the investment objective of a steady stream of income, I strongly disagree that you do not require a type of knowledge to invest in bonds. Bonds differ from equities in that they behave differently. Unless you are using a hold to maturity strategy, you need to know such things as duration and convexity and know how these affect bond prices and how to use them to your advantage. Unless you are using a hold to maturity strategy, you need to know about bond immunization, convertible arbitrage if you have to trade on convertible bonds. There are a whole lot to know about bonds if you have to profit from bond investment, especially if you have to trade bonds with embede options.
My advse is that before you get into bonds, know your investment objectives, your risk tolerance/appitite, your time horizon and understand the risks that accompany bond investments. It does not come easy, it comes with experience, workshops, seminars and readings. Good luck

Maybe it is not so like you think in my opion.

[dinvesta2]

Hello to everyone. I'm thinking of investing some money in the money market. And i need to decide whether to invest in Stanbic Bond fund or invest in treasury bills. Your expert opinions will be appreciated . Thanks

[knightofdelta]

Originally Posted by dinvesta2

Hello to everyone. I'm thinking of investing some money in the money market. And i need to decide whether to invest in Stanbic Bond fund or invest in treasury bills. Your expert opinions will be appreciated . Thanks

Check the yields on Stanbic bond funds and compare with that of treasury bills then put your money into the one that has the higher yield. Finish...