The reopened April 2029 (five-year) bond hit a record high 22 percent stop rate at the FGN bond auction on Monday.
This is a 14 basis points increase from the 21percent on the instrument at the last auction.
“The increase in rates was as a result of poor liquidity in the market, which might have made investors demand for higher rates, ” Joshua Joseph, fixed-income analyst CSL Stockbrokers said.
System liquidity turned negative last week, opening N1.35 trillion short on Monday.
This month’s offer included a reopened N60 billion on the five-year (April 2029) and seven- year (February 2029) tenured bonds each.
The Debt Management Office sold N51.86 billion worth of the Apr 21 (five-year bond), less than the amount offered.
“DMO seems to have given the market an oxymoronic gift – just when we are teetering on the edge of anticipated reduced issuance, the Feb 31s closes at record highs of 22 percent,” Atiku Audu, chief investment officer, ARM pension managers said on a post on linkedin.
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At the November auction, the seven-year bond (February 2031) hit a record high stop rate of 22 percent which was maintained at this auction.
DMO sold N 159.29 billion, on its longest tenure Feb 31s (reopened seven-year bond), more than double its offer in the December FGN bond auction on Monday.
Tajudeen explained that the increase in rate is also a reflection of the high inflation rate and the need of the DMO to inch closer to positive real returns.
“ Although, the real return is still negative, increasing the inches further narrows the gap,” he said.
In November Nigeria’s headline inflation hit 34.60 percent after the Monetary Policy Committee hiked rates by another 25 basis points to 27.50 percent.
The February 2031 instrument was first issued in February 2024 at a stop rate of 18.50 percent.
“ In the entire history of the Nigerian bond market, no bond has ever crossed over 1.800 trillion in issuance. Even the Almighty Apr 2037s bond that was used for restructuring the debt of some states stopped at 1.797trn in total issuance,” Audu said.
Debt Management Office (DMO) sold a total of N211.15 billion FGN bonds, double its total offer.
The N120 billion FGN bonds offered across two tranches on Monday, is the same size as the last auction, making them the lowest auctioned this year down from N18o billion offered in October.
In the last five months the DMO has consistently decreased the size FGN bonds offer.
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Fixed income yields have been rising steadily since the beginning of the year. The MPC has hiked the MPR by over 875 basis points in response to inflationary and FX pressures. These factors persist, supporting the need to maintain high interest rates to attract investors.
The long dated bond (reopened seven-year bond) was oversubscribed by nearly five times the N60 billion amount offered, selling N282.63 billion.
The high demand of this bond led to a drop in yield to 21.50 percent at Monday’s sales from 21.98 percent in the previous auction.
Samuel Gbadebo, fixed-income analyst CardinalStone Limited said that following the reduced supply of notes to N120 billion from N300 billion last month, this indicates that the government is nearing its borrowing target for the year, hence giving the DMO more leeway to opt for more favorable rates as demand remains strong.
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