Investors flood Nigerian bond market despite reduction in rates

The Federal Government of Nigeria, through the Debt Management Office, disclosed that it received total bids of N417.48 billion for MAR 2027, 2035, and 2050 bonds, despite an offer of N150 billion, indicating that it was oversubscribed by N267.48 billion (over 178%) in total.

This was contained in the June 2021 FGN bond auction result, recently released by the Debt Management Office (DMO).

Bigwig FX gathered that the oversubscription for the FGN Auction Bonds auctioned on June 23, 2021, were for the 16.2884% FGN MAR 2027 (Re-opening 10-Year Bond), 12.50% FGN MAR 2035 (Re-opening 15-Year Bond), and 12.98% FGN MAR 2050 (Re-opening 30-Year Bond) were all oversubscribed by 32%, 155%, and 348%, respectively.

Successful bids for the 16.2884% FGN MAR 2027, the 12.5000% FGN MAR 2035, and the 12.98% FGN MAR 2050 were allocated at marginal rates of 12.7400%, 13.5000%, and 13.7000%, respectively. However, the original coupon rates for the three bond tranche will be maintained.

Compared to the previous auction, when successful bids for the 16.2884 % FGN MAR 2027, 12.5000 % FGN MAR 2035, and 14.8000% FGN APR 2049 were allocated at marginal rates of 13.1000%, 14.0000%, and 14.2000%, respectively. These rates imply a reduction in June auction, which was unexpected in the market.

What this means

In an interview with Bigwig FX, Udegbunam Dumebi, a Fixed Income Trader at UBA, said the government should be pleased with the outcome of the auction because they were able to get access to capital at a cheaper rate.

“The government would be pleased with the outcome since they were able to reduce rates while still experiencing oversubscription. This lowers their borrowing costs. Rather than the typical 2045 observed in Q1, Q2 showed a different range, such as 2050,” he said.

Dumebi says the drop in rates was due to a lack of liquidity in the economy, and as a result, investors might switch from stocks to fixed income.

He said, “Inflation affects households and decreases purchasing power, which has a negative effect on the economy. Regardless of the observed reduced rate, the economy is suffering liquidity problems, and uncertainty is considerable. Investors may shift away from stocks and toward government bonds.”

What you should know

  • The interest rate for the latest offer is lower than the offer announced in the previous month. Even though the rate reduced in June subscription, it still increased due to the ongoing liquidity crisis.
  • FGN Bonds are debt instruments issued by the Federal Government’s Debt Management Office (DMO) for and on behalf of the government, and guaranteed by the government’s “full faith and credit.”
  • The FGN owes the bondholder the principal and agreed-upon interest (tax-free) when it is due.


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