Surge in Demand: FGN Medium-Term Bonds Oversubscribed, Breaking February Trend

In a significant turn of events, the medium-term bonds of the Federal Government have experienced oversubscriptions for the first time since February 2023. The specific bonds in question are the 14.55% FGN APR 2029 and 14.70% FGN JUN 2033 bonds, both of which have garnered heightened attention from investors.

Infostride News learned that the Debt Management Office (DMO) recorded an impressive oversubscription of N526 billion in its December bond auction, marking a substantial increase in investor appetite for government bonds. The DMO had offered N360 billion for the bonds auctioned on December 11, 2023, and witnessed a remarkable subscription of N886.412 billion, surpassing expectations and resulting in an oversubscription of N526.412 billion.

However, the allotment of funds was limited to N273.628 billion, as only 176 out of the 501 bids received were deemed successful. Despite the oversubscription, the competitive nature of the auction meant that not all investors could secure a portion of the offered bonds.

Breaking down the results of the December bond auction, Infostride News discovered that for the 14.55% FGN APR 2029 bond, which was offered at a marginal rate of 15.50%, the DMO received a subscription of N169.979 billion against the N90 billion offered. The successful bids, ranging between 14.00% and 17.50%, amounted to N28.614 billion.

Similarly, for the 14.70% FGN JUN 2033 bond, which was offered at a marginal rate of 16.00%, the DMO received 44 bids totaling N57.43 billion. Out of these, nine bids were successful, resulting in an allotment of N9.148 billion. The bids for this bond ranged between 15.00% and 17.50%.

The 15.45% FGN JUN 2038 bond, offered at a marginal rate of 16.50%, attracted a subscription of N113.82 billion in 83 bids. However, only 14 bids were successful, with N23.343 billion allotted. The bids for this bond ranged between 15.00% and 18.00%.

In the case of the 15.70% FGN JUN 2053 bond, offered at a marginal rate of 17.15%, the DMO received a substantial subscription of N545.183 billion in 318 bids. Yet, only 125 bids were successful, resulting in an allotment of N211.523 billion. Bids for this bond ranged between 16.00% and 20.00%.

It is noteworthy that the marginal rates at which the bonds were issued in the December auction were notably lower compared to those from the preceding November auction. This indicates a positive trend in investor sentiment within Nigeria’s bond market, with increased enthusiasm and confidence observed among investors.

Since March 2023, longer-tenured bonds such as the 2050 and 2053 bonds had been the primary recipients of oversubscriptions due to rising inflation in Nigeria, prompting investors to shift their preferences away from short-term bonds. However, the results of the December auction suggest a reversal of this trend, as interest in short-tenured bonds has been reignited.

Despite the increased investor interest, the auction results also highlight a story of unsatisfied investors, as less than half of the bids submitted were successful. This dissatisfaction can be attributed to the relatively low yield rates offered by the Federal Government, signaling that investors may consider the interest rates on Nigerian bonds too low, especially in the context of the country’s inflation rate.

While the possibility of a hike in interest rates seems unlikely, given the Central Bank of Nigeria’s (CBN) successful fundraising efforts through the bond market in recent months, the positive credit outlook for Nigeria by Moody’s is expected to further boost investor sentiment in 2024.

In conclusion, Infostride News recognizes the evolving dynamics of Nigeria’s bond market and the delicate balance between investor expectations and the government’s fiscal policies. The oversubscriptions in the December bond auction underscore the resilience and attractiveness of Nigeria’s bonds, even in the face of changing economic conditions and investor preferences.