DMO Issues US Dollar Bonds at 21% to Boost FX Inflows
The US dollar or foreign currency-denominated bonds were sold by Nigeria’s debt management office (DMO) at a private auction last week for a 21% premium, raising approximately N2.4 trillion for the monetary authority – the Central Bank of Nigeria to sell remaining FX forward obligation.
The DMO held its March 2024 bond auction earlier this week, offering a total of N450.0 billion for three instruments: the reopening of 18.50% FEB 2031 and 19.00% FEB 2034, as well as 19.94% FGN MAR 2027 (new issue).
According to the auction result, the FEB 2031 bond was undersubscribed with a bid-to-offer ratio clearing at 0.3x. The authority offered N150 billion in bond paper to market participants. The DMO sold debt paper valued at N47.9 billion at a 20% stop rate, from N51.8 billion in subscriptions that were received.
On the other hand, the new 3Y benchmark bond was 1.8x, and DMO offered N150.0 billion. Investors staked N264.6 billion on the debt note, but the DMO allotted only N151.9 billion at a stop rate of 19.9%.
Also, the FEB 2034 bond was 2.0x oversubscribed. On N150 billion in debt papers that were put up for sale, investors put down N298.6 billion. At a rate of 20.5%, the DMO sold N275.9 billion in debt paper. Thereafter, investors in the secondary market reacted, hence trading performance closed negative.
In its market update, Afrinvest stated, “We adduced the bearish performance during the week to investors aligning portfolios to take positions in the new benchmark bond which was issued on March 18th.” The bearish sentiments persisted throughout last week, causing the average yield to advance by 82 basis points to 19.3% at the close trading session on Friday.
“We attribute this week’s performance to players reacting to the DMO’s private auction of N2.36 trillion worth of foreign currency bonds on behalf of the CBN to settle its outstanding forwards,” Cordros Capital Limited told investors via email.
The investment firm said in its note that foreign currency bonds issued include new MAR-2026 FGN bonds totalling N700.00 billion. The DMO issued fresh MAR 2028 FGN bonds totaling N558.24 billion and reopened MAR-2027 bonds worth N1.10 trillion; all of these bonds closed at a stop rate of 21.00%.
Analysts at Cordros Capital Limited said demand in the FGN bond secondary market has remained weak since the beginning of the year as investors maintained a risk-off stance for instruments amid the apex bank’s tight control over money supply in the economy.
In addition to the preceding, analysts expect that anticipated monetary policy administration globally and domestically and sustained imbalance in demand and supply dynamics will keep yields elevated in the market over the short-term. #DMO Issues US Dollar Bonds at 21% to Boost FX Inflows Banks Face Risks over 24hrs FX Positions Sell Down
