The Nigerian Federal Government has raised N264.527 billion at its September bond auction, according to the Debt Management Office (DMO).
The auction, held on September 23, 2024, reopened three tranches of Federal Government of Nigeria (FGN) bonds: the 19.30% FGN APR 2029 (5-year bond), the 18.50% FGN FEB 2031 (7-year bond), and the 19.89% FGN MAY 2033 (9-year bond).
In August 2024, the government offered the same bond tenors and amounts, but total subscriptions were higher at N460.182 billion, compared to N414.881 billion in September.
This represents a 9.8% decrease in total subscriptions month-on-month, with the largest decline in the 9-year 19.89% FGN MAY 2033 bond, which saw subscriptions drop from N375.083 billion in August to N337.347 billion in September. The amount allotted also declined significantly from N374.751 billion in August to N264.527 billion in September, marking a 29.4% reduction in total funds raised.
Despite the lower allotment in September, the results indicate sustained demand, particularly for longer-dated instruments.
Breakdown of Auction Results
In this auction, N70 billion was offered for both the 5-year and 7-year bonds, while N50 billion was offered for the 9-year bond.
The 19.89% FGN MAY 2033 bond attracted the highest subscription, with bids totaling N337.347 billion against the N50 billion offer. Out of these bids, N230.716 billion was allotted at a marginal rate of 20.05%.
The 18.50% FGN FEB 2031 bond garnered N54.979 billion in subscriptions, with N31.079 billion allotted at a marginal rate of 19.99%.
On the shorter end of the spectrum, the 19.30% FGN APR 2029 bond saw bids worth N22.555 billion, with N2.732 billion allotted at a marginal rate of 19.00%.
Lower rates
In the September bond auction, the marginal rates across all bond tenors were lower compared to the previous month’s rates. For the 5-year bond (19.30% FGN APR 2029), the marginal rate in August was 20.30%, while in September it dropped to 19.00%. This represents a 6.40% decrease in the marginal rate from August to September.
Similarly, the 7-year bond (18.50% FGN FEB 2031) saw its marginal rate decrease from 20.90% in August to 19.99% in September. This translates to a 4.35% decrease in the marginal rate, again indicating a more favorable borrowing condition for the government as investors were willing to accept a lower return compared to the previous month.
The largest rate reduction occurred in the 9-year bond (19.89% FGN MAY 2033), where the marginal rate fell from 21.50% in August to 20.05% in September. This marks a 6.74% decrease in the rate.
The reduction in the rate suggests that the government was able to secure funding for this tenor at a slightly lower cost, which could help reduce debt servicing obligations.
What you should know
The decline in both subscription levels and marginal rates could reflect growing caution among investors, who may be responding to broader economic conditions or recalibrating their expectations. However, the continued strong demand for longer-dated bonds highlights that investors still view government bonds as a safe investment, especially with the relatively high returns offered. For the Federal Government, the lower subscription levels may point to a tightening liquidity environment or competing investment options, but the substantial funds raised in September suggest that its borrowing program remains on track.
The lower marginal rates also imply that the government was able to secure funding at slightly cheaper rates, which could ease the overall debt servicing costs.