Nigeria's Bond Return Slumps after DMO Raised N662.6bn

Nigeria’s Bond Return Slumps after DMO Raised N662.6bn

The average yield on the Federal Government of Nigeria (FGN) bond slumps by 11 basis points to 13.2% in the secondary market after a highly subscribed primary market bond auction conducted by the Debt Management Office –DMO.

The reported rally across Nigeria’s bonds occurred following healthy liquidity in the financial system, thus, investors shifted attention to the secondary market to purchase debt instruments.

Across the benchmark curve, traders at Cordros Capital said the average yield contracted at the short (-9bps), mid (-19bps), and long (-5bps) segments. Market analysts explained that investors demanded the JAN-2026 (-30bps), APR-2029 (-26bps), and APR-2049 (-20bps) bonds, respectively.

MarketForces Africa reported that DMO held its monthly auction of FGN Bonds on Monday where the agency offered N360 billion for subscriptions. However, the auction result showed that DMO raised N662.6 billion through the reopening of the 13.98% FGN FEB 2028, 12.50% FGN APR 2032, 16.25% FGN APR 2037 and 14.80% APR 2049 FGN bonds.

The participation level at this auction improved on a month-on-month basis, as the DMO secured a total bid of N805.2 billion compared with a total bid of N532.2 billion at last month’s auction, Coronation Research observed.

Based on past auction results, participation level was the highest in 10 months, a slew of market analysts stated. The bids for the 5-Year FGN Bond were priced at 14%, 9-Year attracted a spot rate of 14.90 versus 14.60% in the previous action.

Also, the 15-year FGN Bond spot rate was 15.80% and 27-year benchmarks were allotted at the marginal rates of 15.90%T. The demand at this auction largely reflects improved system liquidity, according to analysts’ notes.

In a market brief, Coronation Research pinpointed that demand was driven by improved system liquidity as N650 billion FAAC inflows hit the financial system. 

“We note that market liquidity stood at N1.2 trillion on Friday while call, overnight and repo rates closed within a range of 5% – 12% reflecting improved system liquidity”, Coronation added.

According to the latest monthly report by National Pension Commission (PENCOM), FGN bonds held by pension fund administrators as at end of December ’22 increased by 10.7% to N9.2 trillion from N9.0trn recorded in the corresponding period of 2021.

The PENCOM report shows that FGN bonds accounted for 61.5% of total assets under management (AUM). Furthermore, the DMO is set to raise a maximum of N1.2 trillion in Q1-2023 through FGN bonds.

However, Nigeria’s debt agency raised N662.6bn in January which accounts for 54% of the target. Analysts said the DMO could exceed its borrowing target for FGN bonds at the end of Q1-2023. #Nigeria’s Bond Return Slumps after DMO Raised N662.6bn

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