THE Federal Government of Nigeria (FGN), through the Debt Management Office (DMO), will be conducting a bond auction today. The indicated total amount on offer is N360 billion from four issues.
The instruments include four re-opening issues: N90 billion 16.29percent FGN March 2027; N90 billion 14.55 percent FGN April 2029; N90 billion 14.70 percent FGN June 2033 and N90 billion 15.45 percent FGN June 2038.
Dealers said that at the last Primary Market Auction (PMA) held in December 2023, demand increased across the instruments on offer, with the total subscription printing at N886.41 billion (vs. N445.29 billion at the last auction in November).
The robust system’s liquidity primarily drove the increase in total subscriptions. In contrast, the amount allotted was lower by 37.02 percent month-on-month (MoM) to N273.63 billion (vs. N434.49 billion at the previous auction).
As such, the bid-to-cover ratio more than tripled to 3.24x (vs. 1.02x in November), indicating increased investor participation. Consequently, the marginal rates on the Apr-29, Jun-33, Jun-38 and Jun-53 fell by 50 basis point (bps) , 100bps, 100bps and 85bps to 15.50 percent, 16.00 percent, 16.50 percent, and 17.15 percent respectively.
Dealers expect rates to hover around the last auction’s rates in today’s auction.
This is hinged on the monetary authority’s commitment to sustaining attractive rates on treasury instruments.
Additionally, the government’s efforts to manage its borrowing costs make a case for keeping rates within the last auction’s range. Notwithstanding, “we highlight that the rate increase at the last Treasury Bills PMA may spur investors’ demand for higher rates at the auction, given the persistently high inflation rate resulting in a negative real rate of return on treasury instruments,” analysts from Proshare Research stated.
In the secondary market, the sentiment has been predominantly bullish as the average bond yield declined to 13.59 percent as of January 25, 2024 from 14.86 percent at the last auction date.
“We see the possibility of a reversal of this trend as investors continue to seek higher rates across the yield curve,” the analysts stated.
