DMO Hikes Rates on Bonds to Meet N1.2trn Borrowing Target
The Debt Management Office (DMO) hikes rates on Federal Government of Nigeria (FGN) bonds in order to meet a N1.2 trillion target at the monthly auction.
The authority conducted its monthly bond auction on Monday, reopening two naira-denominated debt instruments for investor subscription. Details from the June auction results showed demand was stronger amid excess liquidity levels in the financial system.
Financial system liquidity closed at N2.73 trillion last week, reflecting the impact of sizeable Treasury bill sales totalling N1.49 trillion, down from more than N4.8 trillion. At the auction, the DMO reopened the JAN-2035 and APR-2037 FGN bonds with a total offer size of N1.2 trillion.
Demand was healthy, with subscriptions amounting to aboutN1.4 trillion. Ultimately, the DMO allotted N1.2 trillion at stop rates of 18.34% and 18.35%, respectively, from 17.00% and 17.04% previously at the previous auction.
The increase in marginal rates was driven by low appetite for the naira debt papers at the previous auction, which underperformed the authority’s target. Investors demand higher returns on investment amid accelerating headline inflation and the latest surge in spot rates for Nigerian Treasury bills.
In the secondary market, trading activity in Nigerian bonds was bearish, with sell-offs observed across the short (+6bps), mid (+14bps), and long (+20bps) segments of the yield curve. As a result, the average FGN bond yields expanded by 12bps to 17.06%. DMO Hikes Rates on Nigerian Bonds as Auction Underperforms
