Government raises N3.8 trillion from bonds in six months

The federal government has realised N3.77 trillion from bond auctions in the first six months of the year, an analysis of the results of the bond auctions conducted by the Debt Management Office (DMO) shows that in January 2024, the Federal Government raised about N418.197 billion from four bonds that were auctioned and another N1.49 trillion from two auctions in February.

In March 2024, the DMO raised about N475.67 billion in its bond auction, while the office disclosed that the Federal Government raised N626.8 billion in its April 2024 bond auction.

In May, the Federal government raised N380.76 billion from the bond auction while in June it raised an additional N297.006 billion from the auction conducted on June 24, 2024.

In its Medium-Term Expenditure Framework (MTEF) 2024-2026, the Federal Government had indicated that over 66 per cent or about N6 trillion of the total deficits amounting to N9.05 trillion in the 2024 budget would be raised from the domestic market.

This decision was anchored on the high cost of borrowing internationally following the restrictive monetary policy stance of central banks of Western countries.

The amount raised in June, which is 66 per cent of the target, is approximately 22 per cent less than the N380.769 billion raised in May.
The total subscription across all tenors reached N305.257 billion, far lower than the N551.316 billion in subscriptions recorded in the previous month.

The auction result released by the Debt Management Office (DMO) for the June 2024 bond auction revealed a shift in investor preferences towards higher-yielding and longer-tenor debt instruments amidst a backdrop of cautious market sentiment.

The auction, which was earlier scheduled for June 17, was postponed to June 24, 2024, because of the public holiday to mark Eid El Kabir.
The auction featured the re-opening of three FGN bonds: the 19.3 per cent FGN April 2029, the 18.5 per cent FGN February 2031 and the 19.89 per cent FGN May 2033.

Despite offering a total of N450 billion across the bonds, the total subscription was N305.257 billion and the total amount allotted was N297.01 billion, highlighting a significant under-subscription.

The breakdown shows that the five-year bond offered N150 billion but garnered a relatively modest subscription of N22.225 billion across 37 bids, with 36 successful bids. This represents an under-subscription rate of approximately 85 per cent as the total subscription fell significantly short of the offered amount.

The marginal rate for the bond settled at 19.64 per cent, slightly above its coupon rate of 19.3 per cent, reflecting investor demands for higher yields for even shorter tenors.

In the medium-term segment, the 7-year bond also offered N150 billion and saw a subscription of N53.483 billion from 49 bids, with 40 bids being successful. This translates to an under-subscription rate of approximately 64 per cent.

The marginal rate for this bond was higher at 20.19 per cent, compared to its coupon rate of 18.5 per cent. The DMO allotted N45.38 billion, far below the offered amount.

The most substantial interest was observed in the nine-year bond – 19.89 per cent FGN May 2033 – which attracted N229.549 billion in subscriptions from 159 bids, with 158 successful.

It indicates an oversubscription rate of approximately 53 per cent, significantly exceeding the offered amount of N150 billion. The marginal rate was the highest among the three tenors at 21.50 per cent, compared to the coupon rate of 19.89 per cent. The total amount allotted was N229.498 billion, indicating a robust appetite for long-term bonds offering higher yields.

This bond alone accounted for about 77 per cent of the total subscriptions, highlighting a clear investor preference for longer-term securities.

The June 2024 bond auction results reflect a notable trend in market sentiment, with investors showing a marked preference for high-yield, longer-tenor bonds.

The reduced demand for shorter-tenor bonds and the overwhelming interest in longer-term securities suggest that investors are seeking to lock in higher yields amid uncertainty.