For the first time since February 2023, the Federal Government’s medium-term bonds, which are the 14.55% FGN APR 2029 and 14.70% FGN JUN 2033 bonds have recorded oversubscriptions.
Even as the DMO recorded an oversubscription of N526 billion in its December bond auction.
The DMO offered N360 billion for the bonds auctioned on December 11, 2023 and it recorded a subscription of N886.412 billion, representing an oversubscription of N526.412 billion.
However, only N273.628 billion was allotted as only 176 of the 501 bids were successful.
According to the December bond auction results, for the 14.55% FGN APR 2029 bond at a marginal rate of 15.50%, DMO offered N90 billion but received a subscription of N169.979 billion with bids ranging between 14.00%-17.50% of which N28.614 billion was allotted.
For the 14.70% FGN JUN 2033 bond, N90 billion was offered at a marginal rate of 16.00%, however, 44 bids were received, representing a subscription of N57.43 billion.
Nine bids were successful and N9.148 billion was allotted. The bids ranged between 15.00% and 17.50%.
For the 15.45% FGN JUN 2038 bond, N90 billion was offered at a marginal rate of 16.50%. The bids ranged between 15.00%-18.00% and an N113.82 billion subscription was received in 83 bids. However, only 14 bids were successful with N23.343 billion allotted.
For the 15.70% FGN JUN 2053 bond, N90 billion was offered at a marginal rate of 17.15%. The bids ranged between 16.00 and 20.00%, with a total subscription of N545.183 billion in 318 bids. Only 125 bids were successful with N211.523 billion allotted.
It should be noted that the marginal rates the bonds were issued at in the December auction were notably lower compared to those from the preceding November auction.
This serves as another compelling indicator highlighting the enhanced investor enthusiasm within Nigeria’s bond market.
What you should know
Since March 2023, only longer-tenured bonds such as the 2050 and 2053 bonds have recorded oversubscriptions as rising inflation in Nigeria has led to investors switching preference away from short-term bonds.
Results from the December auction indicate a reversal of fortune as interest is being spiked again in these short-tenured bonds. However, while these results indicate increased investor interest, they also tell a story of unsatisfied investors.
For all the bonds auctioned this month, less than half of the bids were successful because of the relatively low yield rates the Federal Government was offering.
This scenario has given credence to the narrative that considering the inflation rate in Nigeria, investors consider the interest rate on Nigerian bonds too low.
However, it is highly unlikely that there would be a hike in the interest rates considering the CBN’s relatively successful attempts at raising funds month after month through the bond market.
With Nigeria’s credit outlook being upgraded to positive by Moody’s, positive investor sentiment is expected as we move into 2024.
