IN the new week, the Debt Management Office (DMO) will auction N150 billion worth of bonds; viz: N50 billion (a piece) for the 13.98 per cent Federal Government of Nigeria (FGN) February 2028, 12.40 per cent FGN March 2036 and 12.98 per cent FGN March 2050 Re-Openings.
Hence, dealers expect the stop rates to moderate – mirroring the drop in money market rate for 364-day bill.
Similarly, treasury bills worth N30.00 billion will mature via OMO; hence, other dealers expect interbank rates to move in mixed directions amid marginal inflow of matured bills.
At the last Primary Market Auction (PMA), marginal rates across all the instruments on offer declined as anticipated.
The DMO offered 12.74 per cent (vs. 13.10 per cent), 13.50 per cent (vs. 14.00 per cent) and 13.70 per cent (vs. 14.20 per cent) on the 2027, 3035 and 2050 instruments, respectively.
Dealers said investor appetite increased along the curve as the 2027, 2035 and 2050 instruments were oversubscribed by 32.42 per cent, 154.90 per cent and 347.64 per cent, respectively.
Clearly, investors were most interested in the 2050 instrument, an indication that there is a general expectation of a decline in interest rate.
This expectation is supported by moderating the inflation rate, and FGN’s precarious income position which bears on its capacity to offer higher rates.
Oil receipts have been largely underwhelming stemming from OPEC+ quota while expenditure continues to rise.
According to analysts from Meristem Fund Managers, the outlook for FGN’s fiscal position is further challenged by rising concerns for a third wave of the coronavirus across the world and the discovery of the delta variant (more contagious variant of the virus) in Nigeria.
The average bond yield in the secondary market declined to 11.7 0per cent as of July 16, 2021, from 11.88 per cent as of the date of the last auction.
The bullish sentiment flows from the general expectation of lower interest rates.
“While we note the pressure on interest rates, we do not think that the current downward trend in yields is sustainable in view of the slow pace of moderation in inflation rate and the implication for real rates of return. This is in addition to FGN’s growing fiscal deficits and need for domestic financing,” the analysts stated.
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