The Nigerian Federal Government successfully raised N264.527 billion at its September bond auction, according to the Debt Management Office (DMO). The auction, held on September 23, 2024, featured the reopening of three tranches of Federal Government of Nigeria (FGN) bonds:
- 19.30% FGN APR 2029 (5-year bond)
- 18.50% FGN FEB 2031 (7-year bond)
- 19.89% FGN MAY 2033 (9-year bond)
Month-on-Month Decline in Subscriptions and Allotments
In comparison to the August auction, where total subscriptions stood at N460.182 billion, the September auction saw a drop to N414.881 billion, marking a 9.8% decrease in total subscriptions. The most significant decline was observed in the 9-year 19.89% FGN MAY 2033 bond, which saw subscriptions fall from N375.083 billion in August to N337.347 billion in September.
Similarly, the amount allotted in the September auction dropped significantly. From N374.751 billion in August, allotments were reduced to N264.527 billion in September—a 29.4% reduction in total funds raised.
Despite this decline, demand for longer-dated bonds remains strong, underscoring investor confidence in government securities, particularly those with longer maturities.
Breakdown of Auction Results
The September auction featured the following offer sizes:
- 5-year bond (19.30% FGN APR 2029): N70 billion
- 7-year bond (18.50% FGN FEB 2031): N70 billion
- 9-year bond (19.89% FGN MAY 2033): N50 billion
Strong Demand for 9-Year Bond
The 19.89% FGN MAY 2033 bond attracted the highest subscription levels, with bids totaling N337.347 billion against a N50 billion offer. Out of these bids, N230.716 billion was allotted at a marginal rate of 20.05%.
Moderate Subscription for 7-Year Bond
The 18.50% FGN FEB 2031 bond saw subscriptions worth N54.979 billion, and N31.079 billion was allotted at a marginal rate of 19.99%.
Lower Interest in 5-Year Bond
On the shorter end of the spectrum, the 19.30% FGN APR 2029 bond received N22.555 billion in bids, with just N2.732 billion allotted at a marginal rate of 19.00%.
Lower Marginal Rates in September
The September auction saw a decline in marginal rates across all bond tenors compared to the previous month, making it more cost-effective for the government to secure funding:
- 5-year bond (19.30% FGN APR 2029): Marginal rate decreased from 20.30% in August to 19.00% in September, a 6.40% reduction.
- 7-year bond (18.50% FGN FEB 2031): Marginal rate fell from 20.90% to 19.99%, reflecting a 4.35% decrease.
- 9-year bond (19.89% FGN MAY 2033): The marginal rate dropped from 21.50% in August to 20.05% in September, marking a 6.74% reduction.
Implications of Lower Rates
The decline in marginal rates suggests that the Nigerian government was able to secure funding at slightly lower borrowing costs. This reduction in interest rates could help to ease the government’s debt servicing burden in the future.
Investor Caution and Economic Outlook
The decrease in subscription levels and marginal rates may point to growing investor caution amid broader economic conditions or adjustments in expectations. However, the sustained high demand for longer-dated bonds indicates that investors still regard government securities as a safe investment, especially with relatively attractive returns.
For the Federal Government, the lower subscription levels could signal a tightening liquidity environment or competition from other investment opportunities. Nonetheless, the successful raising of N264.527 billion in September indicates that the government’s borrowing program remains robust.
Conclusion
Despite the slight drop in both subscriptions and allotments in September, the Nigerian government continues to attract strong interest from investors, particularly for longer-term instruments. The ability to secure funds at lower marginal rates is a positive outcome, suggesting a potential reduction in future debt servicing costs.