Access Bank Nigerian Government Bond Index
Encyclopedia
The Access Bank Nigerian Government Bond Index is a liquid index that was created to ensure that there exists credible data on the Nigerian sovereign
bond market
which will help the investors and other stakeholders to make informed investment decisions while providing a benchmark
for measuring the performance of the rapidly developing local currency
bond markets. This is particularly important as the bonds market is becoming redefined from a primarily sovereign fiscal deficit process to a sound investment
option.
Bonds
. In order to qualify for the index, a bond must be publicly issued through the Debt Management Office and traded under the Primary Dealer/Market Maker Trading Guidelines—as these are the liquid bonds that can be readily bought and sold in the secondary market
. The selection of the index constituents reflects the FGN Bonds available. In order to ensure transparency of the Index, the pricing data are obtained from all the 21 licensed Primary Dealers
/Market Makers in the country. It is therefore easy to replicate
the Index in practice as it includes only traded issues. To aid in strategy development and return attribution, the bond indices include a wide array of statistical information that provides valuable comparative information.
in the domestic money markets, and to encourage long-term savings, introduced the sale of Federal Government of Nigeria ("FGN Bonds") Bonds in October 2003. The FGN Bonds were sold to the investing through all licensed banks and discount houses in the country. However, most of the investors adopted a "hold to maturity" approach and therefore little or no secondary trades were carried out in respect of those Bonds.
In August 2006, a primary dealership/market maker network was established whereby the Primary Dealers/Market Makers ("PDMMs") are the only institutions authorised to deal directly with the DMO in Bond auctions and as such are expected to play an active role in the issuance, sale and marketing of all FGN Bonds to be issued subsequent to their appointment as PDMMs. Apart from underwriting every Bond Issue, the PDMMs are also required to make 2-way price quotes on the Bonds to their customers and other PDMMs in all market conditions upon demand. In essence, therefore, there is a viable and vibrant secondary market trading in FGN Bonds issued by the DMO from August 2006.
Sovereign
A sovereign is the supreme lawmaking authority within its jurisdiction.Sovereign may also refer to:*Monarch, the sovereign of a monarchy*Sovereign Bank, banking institution in the United States*Sovereign...
bond market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
which will help the investors and other stakeholders to make informed investment decisions while providing a benchmark
Benchmarking
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost...
for measuring the performance of the rapidly developing local currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
bond markets. This is particularly important as the bonds market is becoming redefined from a primarily sovereign fiscal deficit process to a sound investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
option.
Index Characteristics
The index was introduced on December 29, 2006 and consists of local currency denominated fixed rate Federal Government of NigeriaNigeria
Nigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising 36 states and its Federal Capital Territory, Abuja. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east, and Niger in...
Bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
. In order to qualify for the index, a bond must be publicly issued through the Debt Management Office and traded under the Primary Dealer/Market Maker Trading Guidelines—as these are the liquid bonds that can be readily bought and sold in the secondary market
Secondary market
The page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....
. The selection of the index constituents reflects the FGN Bonds available. In order to ensure transparency of the Index, the pricing data are obtained from all the 21 licensed Primary Dealers
Primary dealers
Primary dealer is a formal designation of a firm as a market maker of government securities. Primary dealer systems are present in many countries including Canada, France, Italy, Spain, the United Kingdom, and the United States...
/Market Makers in the country. It is therefore easy to replicate
Replicate
Replicate may refer to:* In biology, replication is a process by which genetic material, a cell, or an organism reproduces or makes an exact copy or copies...
the Index in practice as it includes only traded issues. To aid in strategy development and return attribution, the bond indices include a wide array of statistical information that provides valuable comparative information.
Overview of the Nigerian Government Bond Market
The resurgence in the domestic sovereign debt instruments could be traced to 2000 when the Debt Management Office ("DMO") was created with a mandate to centrally coordinate the management of Nigeria’s debt, which was hitherto being done by myriad establishments in an uncoordinated fashion. Hitherto, a huge percentage of the Nigeria’s domestic debt instruments were structured into Treasury Bills with maturities of 91days and below; creating inconsistencies and irregularities in the federal government’s borrowing costs. The DMO, in a bid to restructure the Federal Government of Nigeria’s deficit funding from shorter to longer tenored borrowing instruments, improve and lengthen the yield curveYield curve
In finance, the yield curve is the relation between the interest rate and the time to maturity, known as the "term", of the debt for a given borrower in a given currency. For example, the U.S. dollar interest rates paid on U.S...
in the domestic money markets, and to encourage long-term savings, introduced the sale of Federal Government of Nigeria ("FGN Bonds") Bonds in October 2003. The FGN Bonds were sold to the investing through all licensed banks and discount houses in the country. However, most of the investors adopted a "hold to maturity" approach and therefore little or no secondary trades were carried out in respect of those Bonds.
In August 2006, a primary dealership/market maker network was established whereby the Primary Dealers/Market Makers ("PDMMs") are the only institutions authorised to deal directly with the DMO in Bond auctions and as such are expected to play an active role in the issuance, sale and marketing of all FGN Bonds to be issued subsequent to their appointment as PDMMs. Apart from underwriting every Bond Issue, the PDMMs are also required to make 2-way price quotes on the Bonds to their customers and other PDMMs in all market conditions upon demand. In essence, therefore, there is a viable and vibrant secondary market trading in FGN Bonds issued by the DMO from August 2006.