Borrowing activities gained pace in the local debt capital market in 2023, as interest costs on Eurobond borrowings got costly as foreign central bankers in developed nations continued to raise interest rates.
Local borrowing thereafter gained traction as the Nigerian government reported its greatest annual debt capital market raising in 2023, totaling more than N7.5 trillion. The sum was generated through primary market activity by the Debt Management Office (DMO) and the Central Bank (CBN).
According to Meristem Securities Limited, the money was issued to pay the government’s N10.33 trillion 2023 budget shortfall.
The investment firm said government-issued Treasury instruments totalling N7.51 trillion to investors in the local debt market. Analysts note showed that a total of N2.13 trillion was raised from Treasury bills sales and N5.38 trillion from FGN bonds.
According to the note, this is the highest amount raised by the government on record in the domestic fixed-income market. Due to the large ticket raised by the authority in the year, activity levels in both the primary and secondary markets skyrocketed in 2023, analysts said.
At the T-bills auctions held in 2023, total subscriptions printed at N20.85 trillion, which was 4.87 times the figure recorded in 2022 when it registered N4.28 trillion subscriptions. Analysts at the firm stated that total subscriptions at the FGN bond auction improved significantly by 59.75% year on year to N7.43 trillion in 2023.
Again, the highlighted figures mark record-high numbers, underscoring the improved participation and activities in the domestic fixed-income market during the review period, Meristem said. Naira Rises by 19% as Forex Market Pressures Ease
The firm said the increased activity level was more pronounced in the second half of the year following the numerous measures implemented by the monetary authority that directly impacted the market.
It said factors including adjustment of the asymmetric corridor, removing the NGN2 billion cap on the Standing Deposit Facility (SDF), reintroducing OMO bills, and periodic CRR debits significantly influenced the system liquidity level in 2023.
As a result of these market developments, Treasury yields at both the primary and secondary markets rallied to high levels last witnessed in 2019, analysts explained. At the secondary market, the yield on 364-day notes peaked at 20.00% in November – narrowing the real return to -820 basis points as against -1297 basis points at the start of 2023.
Thus, the average T-bills yield stayed higher at 8.18% at the end of 2023 versus 5.71% at the end of 2022, the investment firm stated. Analysts said in the second half of the year especially, the FGN bond market was predominantly bearish. Of the 22 FGN bonds in issue, 19 of them recorded negative price returns in 2023.
