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Recent trends suggest that the relatively high interest rates prevalent in the financial market over the last six months have spurred greater investment in Federal Government (FG) securities by Pension Fund Administrators (PFAs).
According to data from the National Pension Commission, PenCom, investment in FG securities saw a 20.6% Year-on-Year (YoY) increase, rising to N10.858 trillion in the first half of 2023 (H1’23) from N9.007 trillion in the corresponding period of 2022 (H1’22).
These securities encompass FG Bonds, Treasury Bills, Agency Bonds, and Green Bonds.
The Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR) has remained within the range of 17.5% and 18.75% between January and July of this year. The MPR serves as the benchmark interest rate for the CBN and influences other interest rates in the money market and the broader economy.
Notably, Green Bonds experienced the highest growth, surging by 40.3% to N96.722 billion in H1’23 from N68.949 billion in H1’22. FGN Bonds followed with a 25.2% increase to N10.404 billion from N8.313 billion. Agency Bonds recorded 11.6% growth, reaching N152.338 billion in H1’23 from N136.506 billion in H1’22.
However, Treasury Bills saw a decline of 59% to N192.429 billion in H1’23 from N475.636 billion in H1’22, while Agency Bonds experienced a decrease of 12.1% to N12154 billion from N13.825 billion in H1’22.
Victor Chiazor, an analyst and Head of Investment and Research at Fidelity Securities Limited (FSL), commented on this trend: “The rise in PFAs’ investments in Government Securities is triggered by the interest-friendly rate environment during this period. More of this investment is expected to increase in the second half of the year if the inflation rate continues to rise.”
Mallam Garba Kurfi, an analyst and Managing Director/CEO of APT Securities and Funds Limited, emphasized the importance of investment in FGN Bonds by PFAs due to their low risk and availability compared to other investment options. He noted that “more than N10.0 trillion in the Nigerian financial market was invested into FGN Bonds.”
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