The government current expenditure expanded without appreciable increase in revenue leading to widening fiscal deficit, which were largely financed with bank credit with averse effects on the general price level. Monetary policy in Nigeria has been conducted under wide ranging economic environments.
This is a proposal to remedy market illiquidity and provide solution recommendations. The economic environment in Nigeria is sophisticated and suitable to create a sustainable vibrant bond market that can be vital in economic development.
The success of the bond market depends on the collaboration between the market operators and financial institutions including the Central Bank of Nigeria CBN. However, the bonds issued then had been illiquid and redeemable only to the Central Bank of Nigeria CBN upon maturity.
Inthe Federal government returned to the debt market to mobilize funds for long-term capital projects.
In the process, the government effectively championed the creation of an Over-the-Counter OTC bond market by issuing short-term maturity notes. Recently, a few municipal governments such as Lagos, Ogun, Rivers, Imo issued There is no indication that these bonds will be marketable in OTC market, either.
Corporate Bonds and Debentures In the private sector, corporate bonds and debentures are not often or have not been considered as an option by many companies in funding expansion and innovation. Recently, First Bank, Plc has received approval from the SEC to issue or has already issued about five hundred billion naira N billion worth of bonds dominated in naira currency.
Other companies such as GT Bank, Plc, and Access Bank, Plc have issued foreign currency dominated bonds and convertible bonds respectively. This initiative was hailed as a significant development in providing liquidity in the bond market.
Further enhancement of this PDMM system would have created opportunities for municipal bond underwritings and eventually, corporate bond underwritings for listing on the NSE. However, lack of repos to help primary market dealers to manage their liquidity and finance inventories became a major set back in trading bonds in the secondary market.
Without repos, an over night or short-term borrowing, to provide liquidity in the market, an active bond market is improbable. However, there is a misunderstanding of the product and the market by many investors including big institutional portfolio managers, pension fund managers, endowment administrators, public accountant generals, corporate chief financial officers, and private wealth bankers.
The repo market is the life line of the Treasury securities trading. Repos play a central role in providing liquidity for the vibrant trading and financing of Treasury securities.
Repos provide the liquidity for traders to take risk in trading assets from low yielding investments to high yielding opportunities. Lack of repos in the bond market has forced bond investors at the PDMM level to hold bonds in their portfolios, at times, longer than anticipated at the time of purchase in the primary market.
Many PDMMs have reported holding FGN bonds in their portfolios for substantially longer periods than planned due to lack of marketability for certain bond series. Others have expressed frustration in holding bond inventories that ordinarily would have been traded for other opportunities in the capital market.
The monetary policy rates in the past three years have frozen liquidity in the bond market and created a huge gap in the federal debt management program that even the strongest capitalized banks have been struggling to maintain reserve requirements and liquidity ratios with creative bookkeeping and questionable lending practices as the recent bank audits have demonstrated.
The banks had liquidity for legitimate business investments that would have recorded the greatest economic expansion of all times in Nigeria, but they chose to extend huge loans to favored customers and clients for pre-IPO share purchases.
Since the share purchases were not in companies involved in the real sector of the economy, the loans did not have much impact on the overall economy, except to generate more wealth for the people that were already wealthy.
From tothe Central Bank focused narrowly on stabilizing the value of the naira relative to foreign currencies and holding down inflation. The inability of the CBN to manage short-term interest rates crowded out private capital in the massive economic expansion that the Nigerian economy had enjoyed in five consecutive years.
The idea that capital can best be invested in shares of financial institutions rather than in the real sector of the economy, made many analysts to wonder where the true foundation of the economy lies. Many banks extended margin loans and over leveraged their assets by diverting liquidity from long-term investments that would have been more meaningful for the real sector of the economy to artificially inflated stock prices.
Simply, economic forecast of leading indicators like inflation, employment, consumer sentiments, and investments are often hard to compute.
As a result, investors and traders do not, very often consider allocation of assets based on trends in the economy. The exchange rates and crude oil prices, the only true measurable indicators win consideration at all times in asset allocation.
Just as repos are vital for a vibrant bond market, interest rate policy plays even a more important role in bond trading.
Bonds are issued in tenors maturities of three, five, ten, and twenty years long. A bond is a debt instrument that must be paid back with interest at a future date by the issuer or borrower. In the case of a municipal government, the rating of the municipality also factors in the interest rate pricing of the bond.
The longer the tenor of the bond the higher price interest the lenders of money to the borrower expect to be paid and vice versa for the shorter maturities.
The borrower pays the lender periodic interest, usually every six months, on the bond until the bond matures and at that time, the final interest and principal are paid back to the lender.A central bank, reserve bank, or monetary authority is an institution that manages a state's currency, money supply, and interest grupobittia.coml banks also usually oversee the commercial banking system of their respective countries.
In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency. Nigeria is the largest oil and gas producer in Africa.
Crude oil from the delta basin comes in two types: light, and comparatively heavy – the lighter around 36 gravity and the heavier, 20–25 gravity. Both types are paraffinic and low in sulfur.
The Mechanics of a Bond Market in Nigeria Solutions to Liquidity Constraints in Over-the-Counter Bond Trading. The Monetary Policy framework remained unchanged as in previous years. The policy measures of targeting monetary aggregates and determination of the exchange rate, through the Dutch Auction System (DAS) were sustained as in previous years.
Nigeria is the largest oil and gas producer in Africa. Crude oil from the delta basin comes in two types: light, and comparatively heavy – the lighter around 36 gravity and the heavier, 20–25 gravity.
Both types are paraffinic and low in sulfur. A central bank, reserve bank, or monetary authority is an institution that manages a state's currency, money supply, and interest grupobittia.coml banks also usually oversee the commercial banking system of their respective countries.
In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the .