Investors seem to have lost the appetite for government securities, as the August FGN Bonds auction, conducted on Wednesday, August 21, 2019, recorded its first undersubscription in 2 years.
According to the Debt Management Office (DMO), the FGN bonds were undersubscribed by N49.91 billion.
Breakdown: The auctioned bonds include –N40 billion five-year re-opening bond expected to mature in April 2023 and be offered at 12.75%; N50 billion 10-year reopening bond expected to mature in April 2029 and be auctioned at 14.55%; and N55 billion 30-year bond expected to mature in April 2049 and be auctioned at 14.8%.
Total subscription: The debt office on behalf of the Federal Government, received N95.09 billion, comprising N10.41 billion for 12.75% FGN April 2023 bond; N37.47 billion for 14.55% FGN April 2029 bond; and N47.21 billion for 14.80% FGN April 2049 bond.
The DMO, however, indicated that the demand from investors for the FGN bonds offered at the auction was despite the prevailing tight liquidity experienced in the financial markets.
“Allotments were made to successful bidders at the rate of 14.290% for the five-year, 14.390% for the 10-year and 14.590% for the 30-year bond,” the DMO stated.
Understanding Bonds: A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. A bond has an end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments that will be made by the borrower.
Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.