FGN bond auction records N1.63 trillion subscriptions in February amid declining yields 

This robust interest translated into a higher allotment, but at lower yields, indicating growing investor confidence in Nigeria’s debt market.

The auction, conducted by the Debt Management Office (DMO) on February 24, featured the re-opening of the 19.30% FGN APR 2029 (5-year bond) and the 18.50% FGN FEB 2031 (7-year bond).  Unlike January, where a 10-year bond was also included, the February auction only offered two instruments.

The total amount initially offered for these bonds was N350 billion—N200 billion for the 5-year bond and N150 billion for the 7-year bond.

However, due to strong demand, total allotments surged to N910.39 billion, far exceeding both the offer and the total allotment from the previous month.

In January 2025, the total amount initially offered across the three bond series—5-year, 7-year, and 10-year—was N450 billion.

However, the total allotment stood at N601.04 billion, as the government responded to market demand by issuing more than the initial offer but within a moderate range.

The January auction breakdown showed that N78.86 billion was allotted for the 5-year bond, N153.87 billion for the 7-year bond, and N368.31 billion for the 10-year bond.

By contrast, the February 2025 auction offered only N350 billion, but the total allotment nearly doubled to N910.39 billion, an increase of 51.5 per cent compared to January’s total allotment.

The 5-year bond received an allotment of N305.36 billion, almost four times the amount allotted in January, while the 7-year bond saw an even more dramatic increase, with an allotment of N605.03 billion, almost quadrupling its January level. The absence of a 10-year bond in February likely played a role in the redistribution of funds into the shorter-tenor instruments.

The increase in allotment despite the lower offer suggests that investor confidence in FGN bonds has strengthened significantly.

This could be attributed to multiple factors, including improved market liquidity, expectations of lower inflation, and the potential for a more stable interest rate environment.

The sharp drop in marginal rates between January and February further reinforces this narrative. In January, the 5-year bond carried a marginal rate of 21.79 per cent, while the 7-year bond was auctioned at 22.50 per cent. By February, these rates had dropped to 19.20 per cent and 19.33 per cent, respectively, a decline of over 250 basis points for both instruments.

A major driver of this shift could be the changing expectations regarding Nigeria’s inflation and monetary policy. Lower bond yields typically indicate that investors perceive reduced risks and are willing to accept lower returns in exchange for safety.

Also, the strong participation in February’s auction suggests that large institutional investors, such as pension funds and asset managers, had excess liquidity to deploy, further compressing yields.

The February auction results highlight a more favorable borrowing environment for the government, as the lower marginal rates mean the cost of debt issuance has reduced.

The February auction results highlight a more favorable borrowing environment for the government, as the lower marginal rates mean the cost of debt issuance has reduced.