The selling of new bonds at an auction helped the Federal Government of Nigeria (FGN) raise N369 billion from the local debt capital market. The specifics revealed that spot pricing for auctioned bonds were uneven, however investors preferred longer-dated assets.
the Debt Management Office (DMO) held a main market auction on Monday with a goal of raising N360 billion to help reduce the budget deficit for 2023. Investors have started to price double-digit inflation rate, a high interest rate environment in naira assets throughout the local debt capital market sector in an effort to boost profits on securities offerings.
As the consumer price index accelerated and fund managers told MarketForces Africa that the situation was made worse by a persistent decline in the value of the naira, the market has seen negative real return on naira assets throughout the first quarter, all of which have had a negative impact on portfolio returns.
Yet, according to the auction results, the DMO raised more money—368.67 billion—than the 360 billion that local investors were offered in the debt capital market. As a result, the secondary market for FGN Bonds was quiet as market participants turned their focus to DMO’s auction sales.
The comprehensive result reveals that, as anticipated given the fixed income market’s limited liquidity and returns that were susceptible to inflation, subscription levels on February 28 and April 32 were noticeably low.
On the other hand, experts said that despite shifting market conditions, the recently substituted Jan-42 and Mar-50 maturities were oversubscribed. According to the DMO auction results, the Feb. 28 offer’s stop rates were unchanged.
The spot rate on the Apr-37 bond, meanwhile, was set at 14.80%, 50 basis points higher than the previous record. The Jan-42 and Mar-50 FGN Bond maturities achieved their maiden stop yields at 15.4% and 15.8%, respectively, according to TrustBanc Capital Ltd. According to Cowry Asset Management’s market report, the rates on the 10-year, 15-year, 20-year, and 30-year FGN bonds were unchanged at 13.49%, 14.75%, 15.40%, and 15.60%, respectively.
Following a quiet transaction record in the secondary market for Nigeria bonds, traders said the average benchmark yield held firm at 14.33%. TrustBanc Capital analysts said in a note that at the Eurobond segment, profit takers were vocal across the benchmark curve, leaving their signature on all benchmark securities.
“We expect foreign portfolio investors (FPIs) to stay overweight on the Nigerian curve in the immediate, barring unexpected shocks on the international front”, TrustBanc said. The average yield on Eurobond climbed by 6 basis points to 12.94%.
Elsewhere, the 10-year US Treasury yield advanced by 7 basis points to close at 3.52%.
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