…Bonds worth N1.49trn sold, 60% of amount offered
The Debt Management Office could only raise around half of its intended sale of N2.5 trillion in seven and 10-year bonds on Tuesday as the low interest rates on offer curbed investor appetite.
The two bonds were subscribed to the tune of N1.49 trillion with the seven-year tenor bond raking in N873.5 billion, 69.6 percent of the amount offered while the 10-year bond got N621.38 billion, 49.6 percent of the total offer.
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Analysts say appetite for both bonds was subdued because of the relatively low interest rates on offer. The stop rates on the seven- and 10-year bonds were 18.5 and 19 percent respectively. That’s about the same level as the stop rate on the one-year Treasury bill considered less risky than longer-dated bonds.
The stop rate on the bonds is also well below the January inflation rate of 29.9 percent as reported by the National Bureau of Statistics (NBS).
Portfolio managers who spoke with BusinessDay said they had bid at rates higher than the stop rates because they expected yields closer to the T-bills auction.
“It has to do with rate expectations looking at the auction results; the rate on the seven year maturity wasn’t attractive enough to get robust interest from investors,” Omobola Adu, an economist at BancTrust & Co, said.
“Looking at the one-year T-bills, it was higher than the bond auction. Comparing the one-year T-bills to a seven-year maturity, it’s basically close to the auction result itself in terms of the rate being offered,” Adu.
He said that investors are also waiting to see where rates are closing and future directions of interest rate before locking in a longer term at that point in time.
Damilare Asimiyu, head of investment research at Afrinvest Consulting, said that since the Treasury bills closed at a higher rate, it bided higher for the bonds.
“The Treasury bill was auctioned before the inflation rate came out. So if we take out the effects of the major shocks we now have in January, we would expect that all these things will be considered with the interest rate,” Asimiyu said.
He said that it showed that the Central Bank of Nigeria (CBN) is not fully ready for a market-driven rate. “You can’t have inflation at the border of 30 percent and interest rate is this low.”
He said that the market was a bit disappointed because real returns on the inflation alone is negative and factoring the risk of currency devaluation the rates on the bond wasn’t attractive enough.
Rising inflation is piling pressure on the CBN to hike rates at a meeting next week.
The current benchmark interest rate stands at 18.5 percent, with analysts expecting a 300-basis-points hike by the CBN when the Monetary Policy Committee meets on February 26 and 27.
Sources familiar with this said that tier one banks that were debited in excess of the 32.5 percent cash reserve ratio were refunded ahead of the auction.
Banks are to have 32.5 percent of their deposit with the CBN, but during Godwin Emefiele’s tenure, there were arbitrary cash reserve ratio (CRR) debits, though Olayemi Cardoso, the current governor, has tried to normalise with a bit of refunds from time to time.
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“He has also done some arbitrary debits in trying to manage the FX crises linking the excess liquidity in the bank to that, also having more funds to play in the currency market. So banks got debited more than the 32 percent to as much as 50 percent,” a source said.
He said that two weeks ago, Cardoso said they are going back to the 32.5 percent CRR, so they’ll be refunding banks that have been debited in excess of that amount.
The N2.5 trillion bond auction is the highest amount the government has attempted to raise in local bonds in one month and is seven times more than the N360 billion offered in January.
At the previous bond auction, a total of N418.2 billion was sold of the N360 billion put up. The 15-year bond was oversubscribed to the tune of N266.7 billion, nearly threefold the N90 billion that was offered.
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