Pesuzok:


I wonder why someone will buy 10year bond at 6.5% while 1 year T.B is at 18%. Economist in the house please explain. Is it not the same risk?

you are smart Mr or Miss pesuzok. Yes,its a no brainer to invest in T-bills that pay 18%yield rather than a 6.5%yield rate on 10year bonds. It all boils than to investor asset class preference as well as the type of portfolio the investor operates. A strictly bond portfolio may not dip hands into any other financial instrument no matter how juicy the payout rate is. Bond firms love that long-term security that comes in the form of coupon. The best they can do just to get a taste of the supposed free meal is to allocate a minute fraction of their equity to T-bills and probably other asset class so as to have a well balanced portfolio. On the aspect or risk level,bonds do have way more lower risk level compared to T-bills. Although they are both fixed income instruments, the speculative nature of the T-bills market causes price to fluctuate more than the more calmer bond market. T-bills and Treasury bonds are both backed by government,but Incase of a debt default the bond holders are given preferential treatment compared to T-bills holders. Thirdly. T-bills issue to maturity date is not more than 1year of which the government may decide not to carry out another issuance the next year due to several factors. But in the case of bond issuance,its an obligation on the part of the government to uphold it's part of the agreement until the final year of the bond duration. This exposes the government to long term risk. These are few reasons why the yield rate on T-bills and bonds are far apart. I hope this explanation helps.

Eurobonds is selling debts to a buyer to repay them later after a period of time with interest, the intetest is usually around 6 percent. The duration can range from 1 to 30 years. The bonds are sold in the major International currency ie USD and repayed back in foreign currency.


The bad part is that in 30 years or less Nigeria's dubious government might default.

crownfierce:
Can someone explain this euro bond thing in simpler terms. Wetin e mean sef??
Or are we out of recession?

The Nigerian govt are selling debt instruments that will affect the future generation. EuroBond is a legal way to steal from Nigerians.

MaryBenn:
One question- what is Euro bond?

Someone pls explain this thing

One of the best practices for Investment is truncate the duration for very volatile currencies.

Pesuzok:


Why is the foreign investor not buying T.B that gives more yield

MaryBenn:
One question- what is Euro bond?

Someone pls explain this thing

Its just like selling shares in foreign currencies.

seniwellsFX:
I really don't think it will crash the return on yield rate of the Treasury bill market. My reason is because of the speculative nature of the T-bills market due to its short issue to maturity duration. "Speculators, here I am referring to traders and short term investors that do not hold an open market position that exceeds 12months". Mind you,the speculative market space in all asset classes do carry a larger number of market participants compared to the more traditional long term investment minded individuals. This is due to the human psychology of quick gratification and reducing risk exposure to their investment portfolios. On the aspect of the 10&30year notes issued, I just think they are always over subscribed due to the mouth watering yield rate which is among the highest among 2nd tier emerging market economy. It's just so sad that the funds gotten from the bond issue will be squandered among politicians and will never be accounted for. I foresee a debt pardon by creditors in the future. This is the 3rd euro bond issue for the year and part of this current bond sale as stated in the write-up will be used to service previous coupon payouts. Nigeria,what a country. We are finished.

I doubt if you listened to the minister of finance nor you are conversant on why government opted for this euro bond at this point in time..

Pesuzok:


I wonder why someone will buy 10year bond at 6.5% while 1 year T.B is at 18%. Economist in the house please explain. Is it not the same risk?

Apart from the fact that you will only be able to buy T-Bills with a local, Naira-denominated account into which the monies ('interest' and of course capital) will be paid,

Buying 1yr TB @ 18% only makes more sense, if you can guarantee the local currency would not have slipped below its current value or if the slippage will not be large enough to engulf your intended 18% yield (if a euro is 200 naira now and you are sure that bad as e bad, d thing nor fit pass 236 naira when you want collect your money).

For an economy like ours where what the naira has seen between 2015 - December 2016 is possible ( USD flew from 232 naira to about 495 naira i.e 113% jump), that kinda guarantee is a unicorn.

Investors dance at the word fixed, safe etc... so its good enough for them. (imagine if those whose t-bills matured at that period converted their usd to naira to invest and now want to convert it to back to USD)

plus... interest rates are falling in most of the eurozone, countries like Denmark, Sweden, Switzerland and Japan even have negative interest rates

(A negative interest rate means the central bank and perhaps private banks will charge negative interest, so instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank).

inflation in such countries are about 1.5% (Google) and they're complaining, ours is about ten times that, so in all... they will gladly loan us their money rather than keep it in their banks where they have to pay to keep it safe.

Although some countries offer higher rates, Nigeria's offer is more attractive because just like with the Ponzi's (MMM and co.) Higher rewards portend higher risks, so countries with more juicy offers may also be at a higher risk of defaulting e.g venezuela and co. a default means that when the time comes for the country to return the borrowed capital, the government negotiates for a longer than agreed date.

Hope I tried, na Engineer I be abeg

ttmacoy:
I assume you know what a bond is i.e. long term debt issued by a country as opposed to Treasury Bills which are more short to medium term.

A Eurobond is just a bond raised on the international market in Euros. The name refers to the currency e.g. Yankee bonds are bonds raised in dollars, Samurai bonds are bonds raised in Yen, etc.

A simplistic example, Nigeria issues a bond of 100 Euros at 10% for 30 years means Nigeria will pay 10 Euros annually in interest to the bond holder and at year 30 return the principal of 100 Euros.

Euro Bonds can also be USD dominated.

seguno2:


You mean that Buhari and APC are corrupt
Adonbelieveit

no be me talk am

MaryBenn:
One question- what is Euro bond?

Someone pls explain this thing

Good question - First, a bond is a loan/debt certificate issued by a borrower to raise finance for their use. There are different kind of bond issuance and Eurobond is an international bond or debt. It is an unsecured debt, that is you do not need to provide collateral and it can only be raised by companies with good reputation- that is companies with good credit ratings. Some countries also go to the Euromarket (this is where Eurobonds are raised) to raise debt. The difference between an Eurobond and a Local Bond market is that you are raising debt finance in a currency (dollars) other than your local currency (Naira).

BanevsJoker:

I may not know a lot about Economics, but common sense would suggest that it is utter foolishness to borrow money to pay off debts. This only means that in 10 years, the FG will again borrow to pay off these bonds. The painful thing about Nigeria is not the current situation, it's the strong indication that it will only get worse with this Government at the helm.

You are actually saying the truth. The Government has borrowed to refinance its local debt and spend on 2018 budget. Don’t forget that 70% of our budget expenditures are recurrent items and hence the government borrowed $3bn to spend on recurrent expenditures and to pay off loans. Which means in 10 years time when this bond is due for repayment and after paying interest, the present government will have to go source for money to pay off this loan. The same for the 30 year issuance.

However, the present administration that made this decision would be far gone or some of them dead by that time. Nigeria is in trouble.

jossey94:

Now the FG was in this same situation, paying 22% annually (Avg effective yield of the 364DTM Tbill), when they could be paying 7% instead (Average FGN Eurobond yield). Therefore, they decided to refinance the debt to make it cheaper for them.

Unfortunately that's not the situation/reason for the Euro bond sold by Fg. They raised money to finance the 2017 budget. Yes we all know a year budget could run into the first quarter of the next year but can we sincerely say this is the case with Nigeria? This is the 3rd eurobond this year and we still have sukuk bond which we don't know the full details of repayment with the holders

jam04:


Unfortunately that's not the situation/reason for the Euro bond sold by Fg. They raised money to finance the 2017 budget. Yes we all know a year budget could run into the first quarter of the next year but can we sincerely say this is the case with Nigeria? This is the 3rd eurobond this year and we still have sukuk bond which we don't know the full details of repayment with the holders

2017 is over. What aspect of 2017 budget do they intend to fund

Oh

Hi. Saw the mention since but I have been too busy to reply. Hope it's not too late. $3 billion out of an approved $5.5 billion have been raised.
$2.5 billion (out of the $3 billion) would be used for capital projects - this was recently released - while the balance was used to redeem T-bills maturing in December. The question I replied to was referring to the refinancing and not the capital expenditure part.

Also, while this is the third Eurobond issue this year, the first two were for the 2016 budget while this one relates to the 2017 budget. I know it's kinda confusing cos of our messed-up budget cycle. Hopefully that would change in 2018.

jam04:


Unfortunately that's not the situation/reason for the Euro bond sold by Fg. They raised money to finance the 2017 budget. Yes we all know a year budget could run into the first quarter of the next year but can we sincerely say this is the case with Nigeria? This is the 3rd eurobond this year and we still have sukuk bond which we don't know the full details of repayment with the holders

MaryBenn:
One question- what is Euro bond?

Someone pls explain this thing

in very simple terms, Nigeria is now indebted 2d tune of 3billion dollars

crownfierce:
Can someone explain this euro bond thing in simpler terms. Wetin e mean sef??
Or are we out of recession?

in very simple terms, Nigeria is now indebted 2d tune of 3billion dollars. Na loan we go take so