FG raises over N380 billion in May bond auction amid weaker demand 

Analysis: Nestle Nigeria clever move to reverse negative shareholder funds 

The Nigerian government has raised N380.769 billion in a highly subscribed bond auction conducted on May 13, 2024. 

However, the amount raised is 39% less than what was raised in the April FGN bond auction 

The aggregate subscription across all tenors reached a staggering N551.316 billion, far lower than the N920.088 billion in subscriptions recorded in the previous month.  

However, the DMO also recorded a non-competitive allotment of N301.300 billion, suggesting continued interest from certain institutional investors, despite the broader market’s reticence. This component of the auction highlights the ongoing reliance on guaranteed buyers, which somewhat cushions the impact of reduced competitive bidding. 

Breakdown of Auction Result 

The auction involved the issuance of three bonds with varying maturities, highlighting an assertive strategy to secure long-term funding under competitive yields. 

  • At the forefront of the auction was the new 9-year bond, the 19.89% FGN MAY 2033, which garnered N373.875 billion in subscriptions. Out of this, N285.124 billion was allotted, including N179.000 billion under non-competitive bids. The bond, which made its debut in this auction, attracted bids ranging from 16.9500% to 22.0000%, eventually settling at a marginal rate of 19.89%. 
  • The 7-year bond, 18.50% FGN FEB 2031, also reopened, pulling in N76.875 billion worth of bids, of which N62.975 billion was allotted. This included N85.800 billion in non-competitive allotments. The range of bids for this tenor spanned from 17.2000% to 20.8000%, with a final marginal rate of 19.74%. 
  • Completing the trio was the 5-year 19.30% FGN APR 2029 bond, reissued with bids amounting to N100.566 billion and an allotment of N32.670 billion. An additional N36.500 billion was allocated through non-competitive bids. The bids for this bond were within the range of 17.5000% to 21.0000%, and the marginal rate was pegged at 19.29%. 

What You Should Know 

  • The subscription in May 2024 is the lowest level of investor participation in government bonds for the year, a decline likely due to the anticipatory stance of investors ahead of key monetary policy decisions. 
  • The upcoming Monetary Policy Committee (MPC) meeting by the Central Bank of Nigeria (CBN), slated for May 20-21, 2024, appears to be a critical factor influencing investor sentiment. 
  • Market participants seem cautious, opting to wait for the central bank’s next moves regarding interest rates, which could significantly impact bond yields. 
  • As the DMO offers more bonds in subsequent months, the outcomes of the forthcoming CBN policy meeting will be crucial in shaping investor confidence and the government’s future borrowing strategy.  
  • Global credit ratings agency, Fitch Ratings, recently projected further hike in monetary policy rates by the CBN in the second half of the year. 
  • This was disclosed in its credit outlook for Nigeria where the country’s sovereign credit default outlook was raised from stable to positive on the back of recent reforms in the monetary policy and oil and gas sector. 
  • According to the report, the hike in interest rates in the first quarter of the year has seen the apex bank carry out open market operations at rates closer to the MPR. 
  • The CBN governor, Yemi Cardoso, recently said that interest rates would stay high for as long as necessary to tame inflation during an interview with the Financial Times. 

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