The fixed-income market witnessed many wins in 2024 as rising interest rates saw yields on its instrument grow and international rate cuts allowed for the issuance of foreign debts.
To fight stubbornly high inflation, the Central Bank of Nigeria (CBN), hiked benchmark interest rate eight times and by 875 basis points to 27.5 per cent in November from 18.75 per cent at the beginning of the year.
This lured investors to return to fixed income investments such as Treasury Bills, Commercial Papers, and bonds. This has also caused banks’ interest income and profitability to rise.
Read also: FG offers N120bn bonds for subscription
Record high yields and subscriptions on N T-bills
Data from the CBN shows that it sold N12.83 trillion worth of OMO and T-bills year-to-date, compared to N716.7 billion in the whole of 2023.
In February, the CBN had signalled a benchmark interest rate hike when it hiked the rates on the one-year T-bills to 23.4 percent from 13.6 percent. At that auction Nigeria sold a record N1 trillion worth of Treasury Bills, the highest amount of cash raised via TBills in a single auction since the CBN started tracking data.
By February 27, the apex bank delivered a 400 basis points hike, its largest rate hike in around 17 years. This further spurred an increase in rates on one-year T-bills to 27.33 percent at the first auction in March and 27.76 percent by the end of the same month, all of which witnessed oversubscription due to high investors demand.
The foreign exchange inflows recorded in the first quarter of 2024 into Nigeria were about 136 percent of the total inflows recorded in 2023.
However, the high interest environment saw the crowding out of the private sector.
The value of corporate bonds issued by Nigerian companies dropped by 98 percent between the first quarter of this year and last last quarter 2023 on high yield demand by the lending public, BusinessDay analysis of FMDQ Securities Exchange Limited’s latest data has shown.
Yields on the Treasury bills began to decline in the second quarter as the government had frontloaded their borrowing and was watching borrowing costs.
However with the continuous rate hike yields on the one-year T-bills started to increase again and peaked twice. Once in the July-24 auction where the true yield was 28.36 percent and eventually 30.7 percent in the November 20 auction.
Nigeria’s one-year Treasury bill auction witnessed the largest investor interest this year at the December 5 auction, attracting a s N2.53 trillion in bids, nearly five times the amount offered on system liquidity.
The wins extended to OMO bills as well as the CBN sold 364-day OMO bills — patronised by banks and offshore investors — at a yield of 32 percent, the highest since the apex bank began selling the bills.
The record yield on the one-year OMO bill was the CBN’s latest attempt to halt the naira rout by offering higher returns to attract foreign portfolio investments.
Read also: FG plans $1.7bn Eurobonds to support economic reforms Wale Edun
Record high yields and offers on FGN bonds
This year the FGN bonds also witnessed some wins in the year 2024.
February saw a record-breaking auction of N2.5 trillion on its seven and 10-year bonds, with N1.5 trillion sold at 18.5 and 19 percent respectively.
As the year went by, stop rates on the bonds grew so much that The February 2031 (seven-year) bond hit a record high 22 percent stop rate to inch closer to positive real returns, at the November bond auction on Monday.
At the time, the Feb 31s (seven-year bond) was dangerously close to the N1.8 trillion issuance mark as it sat at N1.795 trillion in total issuance.
The total outstanding value of the February 2031 instrument sits at N1.79 trillion at its tenth issuance this year of the instrument.
Similarly, the April 2029 (five-year) bond hit a record high 21.14 percent stop rate at the December FGN bond auction. This is from 19.30 percent when it was first issued.
Debut issuance of domestic dollar bond
Nigeria’s efforts to deepen its capital market and diversify funding sources took a significant leap with the issuance of the inaugural Domestic Federal Government of Nigeria (FGN) US Dollar Bond.
The Federal Government raised over $900 million from investors in its first tranche, which was over 180 percent subscribed, marking a crucial step in broadening Nigeria’s funding avenues amid global economic headwinds.
The domestic dollar bond is a $2 billion programme to be raised in four batches of $500 million each, offers a coupon of 9.75 percent and the interest is paid in dollars.
The bond lowered the barrier of entry for several thousands of Nigerians as it was opened to both Nigerians resident in Nigeria, Nigerians in the diaspora, foreign and institutional investors.
Read also:FG opens final savings bonds for 2024
Oversubscribed eurobond issuance after 2-years hiatus
Nigeria had a successful return to the international bond market after a two year hiatus, with subscription four times the intended offer of $1.7 billion.
After a long wait all year, the Federal Republic of Nigeria issued a dual-tranche Eurobond offering under its Global Medium Term Note Programme to finance the country’s 2024 fiscal deficit today.
The issuance was oversubscribed in excess of $9 billion and the federal government eventually took just $2.2 billion across both bonds.
The federal government sold $700 million worth of the 6.5 year Eurobond maturing in 2031 at a coupon rate of 9.625 percent and $1.5 billion of the 10-year tenure at 10.375 percent.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
