FGN bond auction records N1.63tn subscriptions

The Federal Government’s bond auction for February recorded a surge in investor demand, with total subscriptions rising to N1.63tn, a significant increase from the N670.94bn recorded in January.

The sharp rise in demand led to higher allotments, even as yields fell, reflecting stronger investor confidence in Nigeria’s debt market. This is according to the auction result released by the Debt Management Office on its website on Tuesday.

The auction, conducted by the DMO on February 24, involved the reopening of the 19.30 per cent FGN APR 2029 (five-year bond) and the 18.50 per cent FGN FEB 2031 (seven-year bond).

Unlike the January auction, which also featured a 10-year bond, the February auction was limited to two instruments.

The total amount on offer for both bonds stood at N350bn, with N200bn allocated for the five-year bond and N150bn for the seven-year bond.

However, heightened demand saw the total allotment jump to N910.39bn, surpassing both the initial offer and the total allotment for January.

In January, the government initially offered N450bn across three bond tenors—five-year, seven-year, and ten-year—but ultimately allotted N601.04bn after considering investor demand.

The breakdown for the month showed N78.86bn allotted for the five-year bond, N153.87bn for the seven-year bond, and N368.31bn for the ten-year bond.

By comparison, the February auction, which had a lower offer amount of N350bn, saw a total allotment that was 51.5 per cent higher than January’s.

The five-year bond’s allotment rose to N305.36bn, nearly four times its January level, while the seven-year bond’s allotment surged to N605.03bn, almost quadrupling the January figure.

The absence of the ten-year bond in February likely contributed to the increased subscriptions for the shorter-tenor instruments, as investors redirected their funds.

Despite the larger allotments, yields declined sharply in February. In January, the five-year bond was auctioned at a marginal rate of 21.79 per cent, while the seven-year bond had a marginal rate of 22.50 per cent.

By February, these rates had dropped to 19.20 per cent and 19.33 per cent, respectively, reflecting a decline of over 250 basis points for both instruments.

The falling yields suggest that investors have become more comfortable with lower returns, potentially due to expectations of a more stable interest rate environment and moderating inflation.

The increased demand and lower yields could also point to improved market liquidity, as institutional investors, including pension funds and asset managers, appear to have had ample cash to deploy into government securities.

For the government, the results of the February auction present a more favourable borrowing environment, as the reduced marginal rates translate to a lower cost of debt issuance.