Indications have emerged that dwindling investors’ interest in bond auction last week was induced by the tight level of financial system liquidity due to the Central Bank of Nigeria (CBN’s) monetary tightening measures.
Also, market participants identified the Monetary Policy Committee (MPC’s) upcoming policy rate meeting, which could potentially impact the direction of yields as another reason that affected investor sentiments.
At the monthly primary market auction held by the Debt Management Office (DMO) in the week, the agency offered its usual N450 billion worth of Federal government of Nigeria’s (FGN) papers to investors. However, the total sales of N381 billion fell short of the agency’s target of N450 billion.
It was also a significant reduction compared with the total sales of N627 billion in April. Also, the sales-to-offer ratio of 0.8x is a marked decline from the 1.4x recorded in the last auction.
The sales outcome in May, according to analysts, is the lowest made so far this year as the subscription level, a good gauge of investors’ appetite, also fell to N551 billion, down from N920 billion at the previous auction.
This implies a bid-to-offer ratio of 1.2x, significantly lower than the 2.0x recorded in April.
Market data from DMO show that while the five-year (FGN Apr ‘29) and seven-year (FGN Feb ‘31) benchmarks were maintained, the nine-year (FGN May ‘33) benchmark was introduced at the auction.
The longest tenor bond, May ’33, attracted strong interest from investors, resulting in total subscription and sales levels of N374 billion and N285 billion, respectively, compared with the offered amount of N150 billion. The marginal rate for the paper on offer was set at 19.89 percent.
Bond yields have risen considerably compared to historical levels, primarily influenced by the MPC’s aggressive tightening stance.
Going forward, “we expect the MPC to raise rates at its next meeting following a sustained rise in domestic price pressures. As such, we continue to see upward yield trends,” a market source stated.
Meanwhile, the Federal Government has listed its April 2024 Savings Bonds worth N4.214 billion on the Nigerian Exchange Limited platform. This was disclosed in the market bulletin signed by Godstime Iwenekhai, the Head of the NGX Issuers Regulation Department.
The bulletin read, “Trading License Holders are hereby notified that the April 2024 Issue of the Federal Government of Nigeria (FGN) Savings Bonds was listed on Nigerian Exchange Limited (NGX) on May 13, 2024.”
The bonds’ details include FGS April 2026, 1.228 million units valued at N1.228 billion at a coupon rate of 17.046 percent and FGS April 2027, 2.986 million units amounted to N2.986 billion at a coupon rate of 18.046 percent. The bonds are backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria, according to the debt office.
FGN Savings Bond is issued monthly in tenors of two and three years, with quarterly coupon payments (interest) at a rate predetermined and published by the DMO every month.
The retail savings bond product was introduced by the DMO on behalf of the Federal Government in 2017 to democratise its activities in the bond market by making it easily accessible to Nigerians. This will ensure continuous development of the domestic market and bridge the infrastructure deficit, which has been a constraint to economic growth.
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