Nigeria Sells 15-Year Bond for 16%

Nigeria Sells 15-Year Bond for 16%

Nigeria’s debt office sold 15-year tenored government bonds at a spot rate of 16% amidst weak subscription level seen at the primary market auction conducted by the authority. This is expected to impact debt service costs as investors began to demand higher returns on investment.

In a move to combat the inflation rate, the Central Bank of Nigeria’s (CBN) decision to tighten monetary policy has seen the benchmark interest rate jump higher to 15.5%.

The move altered money pricing in the financial markets with upward yield repricing in the debt capital market segment. Borrowing rates have increased across long and short end while analysts are projecting higher net interest margin on lending for Nigerian banks.

Last week, MarketForces Africa reported that Debt Management Office reopened allotment on the FGN 2029, 2032, and 2037 bond papers on Monday with N225 billion offer made to investors.

Auction result showed that subscription level settled at ₦107.9 billion indicating a gross bid-to-cover ratio of 0.5x – meaning that there was weak appetite for government bonds in the primary market.

Prior to the auction, Central Bank of Nigeria had tightened access to discount window after the apex bank spotted that its authorised dealers continues to access the window the same day when they bid for government instruments.

Also, there was pressures on financial system liquidity which kept short term rates at double digit high, according to market data.

In the primary market, demand for government securities was affected by low positioning from the local banks following the need to keep liquidity requirements intact amidst tightness in the financial system liquidity.

The auction result showed that the short and middle end of the curve witnessed low investor patronage as bid-to-cover ratios printed at 0.04x and 0.16x respectively. READ:Debt Market to Trade Quiet as Investors Search for Direction

“We suspect that the weak market appetite may not be unconnected to reduced system liquidity (down 2.6% week on week) occasioned by the CBN’s recent scale-up in cash reserve ratio baseline to 32.2% from 27.5%”, Afrinvest said.

Analysts said nevertheless, yield repricing continues in the fixed income market following interest rates hikes and worsening inflation conditions.

At the DMO auction, marginal rates tracked higher on all the issued tenors by 100 basis points, 115 basis points, and 150 basis points to 14.5% from 13.53%, 15.0% from 13.85%, and 16.0% from14.50%.

The DMO allotted N107.88 billion worth of bonds (Re-openings) split as N3.13 billion for the 14.55% FGN APR 2029. Also, N11.90 billion was allotted for the 12.50% FGN APR 2032, and N92.85 billion for the 16.25% FGN APR 2037.

Trading activities in the secondary market for bonds ended on a bearish note as investors continued to re-price bonds upwards following the elevated interest rate in the environment.

Due to bears-dominated proceedings, the average yield tracked higher by 43 basis points to 14.2%. There was sell pressure across the end of the curve, with the short end taking the biggest hit.

Market records profit-taking on the short (+83bps), mid (+31bps), and long (+10bps) spectrum of the curve.  Precisely, sell-offs were seen on the ARP-2023 (+325bps), NOV-2029 (+40bps), and APR-2037 (+38bps) bonds.

# Nigeria Sells 15-Year Bond for 16%#