DMO sells N378bn FGN Bond despite higher demand

Nigeria’s Debt Management Office (DMO) sold N378 billion in FGN bonds yesterday despite facing higher than offered demand for the bonds, indicating the government is slowing down on borrowing cost.

Segun Adams, analyst at Afrinvest West Africa said that at the auction DMO sold 1.52 times its offer.

“The decision to sell 44.2 percent of papers issued to non-competitive bidders suggests DMO’s mindfulness of the growing cost of borrowing on the Federal Government,” he said.

The DMO auctioned N450 billion FGN bonds yesterday across three tranches. It issued a new nine-year bond and reopened a five and seven tenure at N150 billion each.

Preference was given to the new 9-year bond selling N285.12 billion, even though it was oversubscribed to the tune of N551.32 billion at a stop rate of 19.89 percent.

Adams said that It’s a trend we should expect for the near term as DMO attempts to manage its pressure on the fiscal side.

DMO sold N32.67 billion and N62.98 billion barely 40 percent of the initial offer on the 5-year and 7-year offer despite getting over N170 billion on both bids.

Analysts at CardinalStone explained in its most recent monthly fixed income report that at the long end (bond), they expect yield increases to be tamer.

This view is premised on the government’s decision to frontload a substantial part of its 2024 borrowings in the first quarter.

“Specifically, the Q2 ’24 bond auction calendar suggests that the government should raise between N300 billion — N600 billion monthly compared to the 2.5 trillion borrowings in Q1’24),” the report said.

The N2.5 trillion bond auction is the highest amount the government has attempted to raise in local bonds in one month.

The stop rates of the five and seven-year bonds were 19.29 and 19.74 percent respectively. Which is marginally less than 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 March inflation rate of 33.2 percent as Price pressures remained prevalent in Nigeria.

The current benchmark interest rate stands at 24.75 percent, a 600 basis point increase from 18.75 at the beginning of the year.

At the previous bond auction a total of N626 billion was sold of the N450 billion put up.