Nigeria Raises N4.2trn from Local Debt Market

Nigeria Raises N4.2trn from Local Debt Market

Via bond auction sales, Nigeria’s Debt Management Office (DMO) has raised N4.2 trillion in seven months to support government’s 2023 budget deficit financing.  The debt office has maintained depressed spot rate pricing to keep funding costs lower despite inflation pressure. It has also continued to frontload borrowings. 

At the monthly bond auction in July, the DMO overshot its borrowing plan again.  The debt agency then took advantage of large subscriptions for government bonds, raising N657 billion, 82.5% above its target at lower average rates of 13.63% from 14.94% in June.

Negative interest yield on bonds has locked the door against foreign investors despite a sustained shortage of US dollars in the economy. Nigeria has kept borrowing costs on local bonds lower, though interest and inflation rates have expanded.

At the last auction, the debt office had planned N360 billion worth of bond sales. However, stronger system liquidity pushed demand 2.6 times the total offer. In 2022, Nigeria raised N3.3 trillion from the local bond market.

In the just concluded week, the values of FGN bonds traded at the secondary market further moderated as yields increased for most maturities tracked. To local bond investors, the rising inflation rate remains a downside.

The average yield expanded by 18 basis points to 13.3%. Across the benchmark curve, Cordros Capital told investors that the average yield expanded at the short (+21bps), mid (+15bps), and long (+13bps) segments.

The swing came following profit-taking activities on the MAR-2025, APR-2029, and MAR-2035 bonds, respectively. Selloffs on 2025 Bond resulted in a 63 basis points increase in yield. APR 2029 FGN bond gained 39 basis points while MAR 2035 surged by 45 basis points.

Despite the gains on the first two trading days, Afrinvest Limited said the domestic bonds market closed negative as average yield across tenors rose on the back of depressed liquidity in the financial system.

Traders said the short and long-term bonds witnessed the most selloffs. The market witnessed a raft of sell-offs at the longer end of the curve given the bearish proceedings in the money market. 

Elsewhere, FGN Eurobonds also traded lower across all maturities, reflecting sustained negative sentiment. Specifically, the 10-year, 6.50% NOV 28, 2027, the 20-year, 7.69% FEB 23 2038, and the 30-year, 7.62% NOV 28 2047, recorded losses while their corresponding yields expanded.

“We expect yields in the FGN bond secondary market to remain elevated in the medium term, specifically driven by our expectation of a sustained imbalance in the demand and supply dynamics”, Cordros Capital analysts said in a market update.

However, analysts at the firm highlight that deliberate actions by the Debt Management Office to keep the cost of borrowing moderate remain a downside factor. #Nigeria Raises N4.2trn from Local Debt Market FG Partners WEMA Bank to set up MSME Technology Hubs in 7 States