• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

InvestSmall

  • Personal Finance
  • Corporate Finance
  • Capital Market
  • Reviews
  • Find an Investment

Types of Bonds in Nigeria

January 12, 2023 by Finance

What is a Bond?

A bond is a form of loan that provides the borrower with external funds to finance long-term investments. In the case of government bonds In Nigeria, they are used in financing current expenditures.

Just like stocks, bonds are securities but a major difference between them is that stockholders own equity in a company while bondholders are just lenders in the company. As a result, bondholders have priority over stockholders.

Another difference between the two is that bonds have a defined time when they mature and are redeemed while stocks remain indefinitely outstanding.

Think of bonds in Nigeria as a situation where a company or a government takes out a loan directly from an individual where the individual acts as a bank. The individual loans to an organization, or the government—and they are required to pay that individual back, with regular interest payments. A city may sell some bonds to raise money for specific operations like building a bridge, while the federal government may issue bonds to tackle debt-related issues.

types of bonds in NIgeria

Bonds in Nigeria are as safe investments and as such, are appealing to nervous investors. Bonds can generate a steady stream of income for these individuals, even when the stock market becomes volatile. 

That doesn’t mean bonds are risk-free. Some bonds can be highly risky, as well. There are different kinds of bonds in Nigeria that offer different options to investors.

For instance, you can redeem some bonds before their agreed-upon maturity date, while some bonds can be switched for shares of a company. Bonds have their unique levels of risk, and their credit rating can determine these risks.

Read this -  How to save money in Nigeria

What are the types of Bonds in Nigeria?

The major types of bonds in Nigeria include:

  • Treasury Bonds
  • Municipal Bonds
  • Corporate Bonds
  • Asset-backed Securities

1. Treasury Bonds

The federal government issues treasury bonds. They are the safest bonds you can find; although this depends on the country issuing the bonds.

When compared with other types of bonds in Nigeria, treasury bonds possess the lowest yields. This is because they are somewhat safe, and you know what they say, the safer your assets, the lower the returns.

2. Municipal Bonds

These are bonds that the state government and local government issue. They are for financing capital expenditures such as the building of schools, the construction of bridges, hospitals, etc.

3. Corporate Bonds

When companies need capital to boost their business operations, they issue corporate bonds. Compared to municipal and treasury bonds, corporate bonds have more credit risks. This is because corporate bond defaults happen more frequently than the aforementioned bonds. 

Corporate bonds can comprise investment-grade and speculative-grade.

4. Asset-Backed Securities

Financial assets back these bonds. These financial assets are put together and then resold as bonds to interested investors. 

Why do Bonds matter?

Bonds, as well as other types of fixed-income securities, play a significant role in an investor’s portfolio. In return for interest payments.
Possessing bonds in Nigeria can help you diversify your portfolio because the bond market hardly rises or falls alongside the stock market. Also, bonds are known to be safer and less volatile than stocks.

Find An Investment

Related Posts:

  • Sukuk Bonds in Nigeria Explained
  • Banking in Nigeria - Types and Evolution
  • Types of finance in Nigeria you should know
  • 7 Types of bank account in Nigeria
  • Mutual Funds in Nigeria - Types of funds and how they work
  • What are the types of shares in Nigeria?

Filed Under: Capital Market

Primary Sidebar

Recent Posts

  • PiggyVest Review: All You Need To Know Before Using PiggyVest
  • Complete Guide on How to Start a Mini Importation Business in Nigeria
  • Steps on How To Start a Small-Scale Business in Nigeria
  • 5 ways to buy Mutual Funds Online
  • Investment Banks in Nigeria

Related Posts:

  • Dividends - Meaning, Types and what you should know
  • The Different Types of Investors: What Kind Are You?
  • POS Agencies in Nigeria - How to become a POS Agent in…
  • 7 Types of Financial Investment everyone should know
  • What is an Investment: Meaning and Types
  • Investment: Meaning, Types, and Characteristics

Footer

  • About Investsmall
  • Disclaimer
  • Terms Of Use
  • Contact us

Copyright © 2023 Invest Small. All Rights Reserved