coupon
Coupon shine tsayayyen sha'awa da jinginar ke biya ku akai-akai, yawanci kowane kwata ko kowane watanni shida, har sai jinginar ta balaga kuma ta dawo da babban birnin ku.
Automatically translated. Read the original in English.
In plain English
"So this FGN bond, when do I actually see money from it?" Tolu asked her cousin, who had just sold her a chunk of Nigerian government bonds. "Every six months," he said. "That's your coupon. Like rent, but the government is your tenant."
That word, coupon, is old. It comes from paper bonds that actually had little tickets attached to the certificate, and you would cut one off and take it to the bank to collect your interest. Nobody cuts paper anymore, but the name stayed.
In plain terms, a coupon is the interest rate written on the face of a bond when it is issued. If you buy a ₦1,000,000 FGN bond with a 14% coupon, the government pays you 14% of that amount every year, usually split into two payments of ₦70,000 each every six months, and this continues until the bond matures, at which point you also get your ₦1,000,000 back.
The coupon rate does not change, even if interest rates in the economy move up or down after you buy. That is the whole comfort of it. Someone in London holding a UK gilt with a 4% coupon knows exactly what lands in their account twice a year, no drama, no guessing.
For a Nigerian in the diaspora sending money home to invest in bonds through a local stockbroker, the coupon is often the whole point. You are not chasing share price swings, you just want that predictable payment arriving like clockwork, whether the market is calm or shaking.
You buy ₦2,000,000 worth of a 16% FGN bond. Every year you receive ₦320,000 in coupon payments, usually ₦160,000 every six months, and at maturity the ₦2,000,000 principal is paid back to you in full.
Questions people ask
Does the coupon rate change if interest rates in the country change?
No. Once a bond is issued, its coupon rate is fixed for the life of that bond. What changes instead is the bond's market price, since new bonds issued later may carry different coupon rates to match current conditions.
Is coupon the same as the return I will make on my investment?
Not exactly. Coupon is the fixed interest paid regularly, but your total return also depends on whether you bought the bond above or below its face value, which affects what is called the yield.
Do all bonds pay a coupon?
Most do, but there is a type called a zero coupon bond that pays no regular interest at all. Instead, you buy it at a discount and receive the full face value at maturity, with the difference being your gain.
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