The federal government has raised N225.714 billion in the July 2024 bond auction, which is about 75% of its target as demand for short-term bonds weakens.
Last month, about N297.006 billion was raised from the June bond auction, which means that the amount raised this month has dropped slightly by 24%.
While the federal government offered a total of N300 billion across the three different bond tenors in the latest auction, total subscription for the July 2024 FGN bond auction amounted to N279.664 billion, which is an undersubscription of N20.336 billion.
Amid the undersubscription, the total amount allotted to successful bids in the auction was N225.714 billion, which is slightly less than the total subscription.
The auction results, released by the Debt Management Office (DMO), reveal strong investor interest in longer-term securities while demonstrating a noticeable reluctance towards shorter-term bonds.
Auction Breakdown
The auction featured three re-openings of Federal Government of Nigeria (FGN) bonds: the 5-year, 19.30% FGN APR 2029; the 7-year, 18.50% FGN FEB 2031; and the 9-year, 19.89% FGN MAY 2033. The total bids received for these bonds amounted to 186, highlighting a moderate level of participation and competitive interest.
- 30% FGN APR 2029 (5-Year Bond): The 19.30% FGN APR 2029 bond, a re-opening of the 5-year bond, saw a modest level of investor interest. The Federal Government offered N100 billion worth of these bonds, and received a total of 21 bids. Out of these, 11 bids were successful, culminating in a subscription amount of N21.485 billion.
- Amid the low subscription, the government allotted N18.885 billion of the bonds. The range of bids for this bond varied from 18.5000% to 21.0000%, with the marginal rate being set at 19.8900%.
- 50% FGN FEB 2031 (7-Year Bond): The 18.50% FGN FEB 2031 bond, which is a re-opening of the 7-year bond, experienced even lower investor interest compared to the 5-year bond. With N100 billion on offer, the total number of bids received was 16. Out of these, only 9 bids were successful, resulting in a subscription of N16.530 billion.
- The government allotted N6.180 billion worth of the bonds from this subscription. The range of bids for the 7-year bond was between 16.0000% and 20.5900%, with a marginal rate of 21.0000%.
- 89% FGN MAY 2033 (9-Year Bond): In stark contrast to the shorter-term bonds, the 19.89% FGN MAY 2033 bond, a re-opening of the 9-year bond, attracted substantial investor interest. The amount offered was the same N100 billion, but the bond received a remarkable 149 bids. Out of these, 117 bids were successful, leading to a massive subscription of N241.649 billion.
- The government eventually allotted N200.649 billion, far exceeding the amounts allotted for the 5-year and 7-year bonds. The bids for the 9-year bond ranged from 17.5000% to 23.0000%, with the marginal rate set at 21.9800%. The significant oversubscription and high allotment underscore a strong investor preference for longer-term securities, likely driven by the higher returns and perceived stability over the extended period.
What you should know
The July 2024 bond auction results reflect a notable trend in market sentiment, with investors displaying a marked preference for high-yield, longer-tenor bonds.
This trend aligns with the broader economic environment, where investors are looking for stable and attractive returns in government securities.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is currently having its meeting, which will likely lead to a higher interest rate and higher yields for investors.
