Higher-yielding investors remained on the sidelines at the recent FGN bond auction, which saw a lower subscription for the third consecutive month.
The Debt Management Office raised only N297 billion in its June FGN bond auction, as investor interest in the bonds remained weak, according to Businessday.
On Monday, June 24, the DMO auctioned N450 billion of FGN bonds in three tranches: a reopened nine-year bond,
a five-year bond, and a seven-year bond, each worth N150 billion.
This falls short of the N378 billion sold from the N450 billion offered at the previous auction.
“Based on market trends and economic fundamentals, the economy needs higher interest rates. Yesterday’s (Monday’s) auction results, which showed low subscription, despite coupon payment on Friday, and relatively high system liquidity, indicate weak investor appetite for Nigerian bonds.
“And the low allotment is due to the low subscription,” she said, adding that this forced those who still want to acquire them to bid at higher rates, “said Ike Alabi, fixed income research analyst at Afrinvest West Africa, an investment bank.
According to her, the Federal Government is trying to reduce its debt; at least we saw subdued rates at previous auctions stating ” There was low subscription yesterday (Monday) and those that bided, did at higher yield, but investors want higher yield.”
At the June bond auction, the long-dated tenor (new nine-year bond) sold for N229.498 billion, 50% more than offered, with an oversubscription of N229.549 billion at a stop rate of 21.50 percent.
The five and seven-year bond stop rates were 19.64 per cent and 20.19 percent, respectively, higher than the 19.29 percent and 19.74 percent recorded at the last auction, and somewhat lower than the one-year Treasury bill stop rate, which is regarded as less risky than longer-dated bonds.
The stop rate on the bonds is also significantly lower than the June inflation rate of 33.95 percent, as price pressures remained prominent in Nigeria.
Nigerian bond sales have slowly decreased following April’s N626.6 billion, which was higher than March’s N475.7 billion. February saw a record-breaking auction of N2.5 trillion, with N1.5 trillion sold. January sales totaled N523 billion.
“Looking forward, we expect the bonds market to remain quiet, with lacklustre interest from investors given that most market participants are of the view that rates in fixed-income markets have peaked,” analysts at United Capital said in a recent note.
They also mentioned that the secondary market for bonds was quiet. “Investor interest in duration exposure remained low. However, the average yield on national bonds increased by 1 basis point week on week to close at 18.77 percent from 18.76 percent.
“Similarly, we observed a relatively quiet market in the corporate bonds segment with average yields on corporate bonds inching up by 2bps week-on-week (w/w) to close at 20.92 per cent from 20.90 per cent.”
