The efforts by the Debt Management Office (DMO) to reform the Nigerian bonds mark has led to effective diversification of the investor base, reducing the dominance of the Central Bank of Nigeria (CBN) as the major investor.
Prior to the 2002, the CBN was the lead investor in the Federal Government of Nigeria (FGN) bonds, accounting for 45.6 per cent, banks and discount houses accounted for 39.4, while non-bank public investors held 14.8 per cent.
By 2006, the holding of CBN dropped to 19 per cent, banks and discount houses increased to 50 per cent and non-bank public investors stood at 30 per cent. In 2009, the CBN’s holding further dropped to 10 per cent, just as banks and discount houses stood at 39.5 per cent and non-bank public investor accounted for 42 per cent.
By the end of 2012, CBN’s holding declined further to 6.1 per cent, while banks and discount houses rose to 54.7 per cent just as non-bank public investors held 36.7 per cent.
Speaking on the investor base, the Director General of DMO, Dr. Abraham Nwankwo, said CBN’s holding since 2006 arose not from any direct participation in the auctions but from secondary market transactions through the provision of discount windows for the FGN securities to the primary dealer market makers (PDMMs).
According to him, in order to encourage the participation of other investors in the government securities, the DMO in 2006 licensed 21 (now 17) PDMMs to buy and sell FGN bonds using the two-way quote system, thereby providing liquidity for FGN Bonds.
Apart from the investor base that have been in favour of the other investors compared with CBN prior to transformation efforts of the DMO, more foreign investors have equally shown interest in government’s securities.
Foreign investors’ holding in the government securities hit $5.112billion as at the end of 2012.
A further analysis of the share of foreign investors’ holding showed that it had been rising consistently moving from 1.66 per cent as at the end of 2011 to 10.26 per cent as at the end of 2012. It equally improved to an average of 16.1 per cent between January and June 2013.
Nwankwo noted that the transformation of the bond market had facilitated market-based funding of appropriated budget deficits and bail-out/special borrowings.
“The current practice of financing part of the country’s fiscal deficits by borrowing from the bond market has not only led to the development of the domestic debt market, it has brought other salutary benefits for monetary policy operations and the economy,” he said.