DMO Fails To Reach N2.5Trn Target From FGN Bond Auction

Nigeria's Total Debt Now N33tn, Says DMO
Nigeria's Total Debt Now N33tn, Says DMO

At its monthly auction in February 2024, the Debt Management Office (DMO) announced on Tuesday that it had raised N1.495 trillion from Federal Government of Nigeria (FGN) bonds. The authority attempted to raise N2.5 trillion in total, but was unable to do so because to low market subscriptions.

DMO issued two bonds for N1.25 trillion: a seven-year bond that matures in 2031 and a 10-year FGN bond that matures in 2034. The debt office reported that it had received the biggest amount of bids in any of the FGN securities auctions, totaling N1.9 trillion.

At the end of the auction, N1.495 trillion had been allocated, with N873.53 billion going toward the 2031 FGN bond and N621.38 billion going toward the 2034 FGN bond.

“The relatively large amount on offer was based on the FGN’s financing need, the opportunity to attract foreign investors, as well as, the premise that some local investors may be able to access pools of funds,” it said.

The FGN bonds and other government securities like the savings bond and the Sukuk bond constitute the local component of government borrowing. The N1.495 trillion bonds allotment is part of the new domestic borrowing of six trillion naira in the 2024 Appropriation Act.

After the N1.0 trillion NTB sales earlier in February, the DMO, in its monthly bond auction, pulled a similar string, offering the amount a slew of investment banking analysts consider to be unprecedented (N2.5 trillion) at yesterday’s bond auction.

The auction was undersubscribed largely due to weak appetite for naira assets, with both the bid-to-offer and bid-to-cover settling at 0.76x and 1.27x, respectively. According to analysts’ reports, the average stop rate printed at 18.75% as against 15.75% in January 2024.

“To our minds, we perceive that these recent aggressive issuances by the government might have been necessitated by the desire to cut back on the arbitrary CBN Ways and Means financing, incentivise foreign investment and mop up expected liquidity”, CardinalStone Partners said in a commentary.

The multi-asset investment banking firm said the aggressive stance may have also been aided at containing inflation and shifting some of the interest expense burden of liquidity mop-ups to the fiscal authority.

Meanwhile, the National Assembly also, recently, approved the securitisation of N7 trillion “Ways and Means’’ advances to the Federal Government.

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