10 notable facts you may not know about investing in bonds

By Chioma Obinagwam

The Federal Government of Nigeria’s (FGN ) savings bond which opened on August 12 and would close on August 16 has sparked reactions on X.

An X user out of curiosity asked a question in the comment section of Economist and financial planner, Aja Kalu, on what bonds entailed.

“I’ve been looking for someone who’d explain this Bond stuff. I’ll want to understand more of this,” Franca Gordon asked.

Dispelling Gordon’s curiosity, Ajah said:

“1. You need N10,000
2. You write a letter to your friend saying “can you lend me N10,000? i will pay back in 1 month, with N1,000 as thanks to you”

your letter is a Bond
the N10,00O is the Principal
the N1,000 is the Coupon
the Interest is 10% (10% of N10,000)
the Tenor is 30 days or i month

If a Government borrows, its called a Treasury

Any questions?”

Corroborating, Chuks said: “Bond is simply lending money to a government or corporate organisation in return for a higher sum.

So basically you are a loan giver.
Govt is borrowing from you or organisations like dangote can borrow from you (corporate bond).”

The financial planner’s reply, however, triggered more questions from other users making the entire conversation a wonderful learning experience.

Excerpts:

An X user known as godofuck asked: “With respect to inflation and exchange rates, would you consider Naira denominated bonds to be a good investment? Are the dollar denominated ones too available to Nigeria based investors??”

Aja replied: “There is no good or bad investment

You can buy dollar-denominated securities, a few @SECNigeria trading apps offer them

@cowrywise @investbamboo @ChakaStocks.”

Migrant pointed: “In Ghana, Government couldn’t pay dividends and forced people to accept deferred payment, some of which run into several years… Those who insisted and could push their way got less than the actual value of what they should get. Even people’s pension funds weren’t spared.”

Aja explained: “Those were on foreign currency denominated bonds not local currency bonds.”

Your Anxiety Buddy asked: “Is the 10% interest monthly or annually?’

Aja replied: “Annual.”

King Jaja of Opobo said: “The stuff is not profitable as the money you invest in is not inflation proof . If you invest 100€ today at black market rate of 2000 that is 200,000 naira on it in two years get say 220,000 on it with 20k profit, how sure are you € would still be 2k then.”

Aja clarified:”It’s designed for INCOME, not profitability.”