The Nigerian Federal Government has successfully raised over N346.155 billion through its November 2024 bond auction, a notable increase in allotments despite a 33.33% reduction in the amount offered compared to October.
The auction, managed by the Debt Management Office (DMO) on November 18, 2024, involved the reopening of two government bonds: the 19.30% FGN APR 2029 (5-Year Bond) and the 18.50% FGN FEB 2031 (7-Year Bond).
Key Highlights:
- Total Offering Reduction: The DMO offered N60 billion for each bond series, down from N90 billion in October. Despite this cut, the total allotment rose by 19.50%, reaching N346.155 billion, up from N289.597 billion in the previous auction.
- Allotment Breakdown:
- The 5-Year Bond saw N63.530 billion allotted, while the 7-Year Bond accounted for N282.625 billion.
- In October, the corresponding figures were N57.237 billion for the 5-year and N232.360 billion for the 7-year bonds.
Investor Demand and Oversubscription:
The total subscriptions reached N369.585 billion, reflecting a 208% subscription rate, indicating strong market demand despite the reduced offering. However, this represents a 5.06% decline from October’s N389.321 billion in subscriptions.
- The 5-Year Bond attracted N75.560 billion in bids, up from N60.737 billion in October.
- The 7-Year Bond subscriptions dropped to N294.025 billion, down from N328.584 billion last month.
Non-Competitive Allotment:
For the first time, a non-competitive allotment was introduced for the 5-Year Bond, with N0.500 billion allocated. This feature, aimed at retail investors, allows them to access bonds without competing directly for the marginal rate, offering them bonds at the same rate determined by competitive bidders. The 7-Year Bond did not include a non-competitive allotment.
Marginal Rates and Bid Ranges:
- 5-Year Bond: The marginal rate increased to 21.00%, up from 20.75% in October. The bid range for this bond was between 19.00% and 21.90%.
- 7-Year Bond: Its marginal rate rose to 22.00% from 21.74%, with bids ranging from 18.00% to 23.00%.
The increase in marginal rates reflects tightening liquidity conditions and growing borrowing costs, influenced by inflationary trends and monetary policy adjustments.
Strategic Implications:
Despite the reduced size of the offering, the DMO’s strategic allocation enabled it to raise substantial funds, showing the government’s ability to attract significant investor interest even amid rising costs. The higher demand for longer-term instruments, especially the 7-Year Bond, suggests that investors are seeking fixed-income securities as a hedge against sustained high-interest rates.
This bond auction indicates Nigeria’s ongoing efforts to balance financing its fiscal needs while managing rising borrowing costs. The increase in allotments, despite the lower offering, signals a strategic approach to securing funds for critical government projects. However, the rising borrowing costs could create challenges for fiscal management, requiring careful allocation of the raised funds to ensure optimal economic impact.
