The Debt Management Office (DMO) recorded significant activity in October 2024, selling Federal Government bonds worth N289.60bn.
This represents a 9.48 per cent month-on-month increase from the N264.53bn sold in September, according to the latest FMDQ Markets Monthly Report.
This uptick comes amidst a high-interest rate environment fueled by the Central Bank of Nigeria’s (CBN) aggressive monetary tightening measures aimed at combating inflation.
The recent hike in the Monetary Policy Rate (MPR) by 50 basis points to 27.25 per cent has amplified the attractiveness of fixed-income securities, including FGN bonds, Treasury bills, and other government debt instruments.
The elevated MPR has led to increased yields on government securities, drawing robust interest from both institutional and retail investors.
For many, these instruments offer an appealing refuge amidst economic uncertainty, providing higher returns compared to other investment vehicles.
Analysts suggest that rising inflationary pressures have bolstered the CBN’s hawkish stance, ensuring that rates remain elevated.
This dynamics has not only driven up demand for bonds but has also contributed to increased investor participation in the debt market.
In addition to bonds, the DMO sold Treasury bills worth N456.57bn in October 2024, marking a 26.68 per cent decline from the N622.74bn recorded in September.
However, the decline in T-bill sales did not reflect diminished investor appetite. The DMO’s offerings were oversubscribed by 67.14 per cent during the period, showcasing continued strong demand for short-term debt instruments.
The oversubscription rate for FGN bonds during October was even higher, reaching 116.29 per cent, underscoring their appeal in the current high-yield environment.
In the Open Market Operations (OMO) segment, the CBN sold bills worth N731.14bn in October, reflecting a modest 2.33 per cent increase from the N714.50bn sold in September.
OMO bills remain a critical tool for liquidity management, further bolstering the appeal of fixed-income instruments amid tightening monetary policies.
Non-sovereign bonds saw no new listings or redemptions on the FMDQ Exchange during the month, with the outstanding value remaining at N2.24trn.
Meanwhile, the value of Commercial Papers (CPs) quoted in October stood at N30.58bn, a 20.61 per cent decrease from September’s N38.52bn. The outstanding CP value declined by 9.23 per cent to N565.28bn due to maturities amounting to N88.08bn during the month.
Institutions in the agriculture, financial services, and retail sectors dominated CP issuances, highlighting the role of private-sector participants in the fixed-income market.
The surge in bond and T-bill activity underscores the profound impact of the CBN’s high-interest rate policy on Nigeria’s debt market. As yields rise, fixed-income securities continue to attract substantial demand, offering a safe haven for investors navigating economic volatility.
However, the sustained tightening of monetary policy could pose challenges for the broader economy, potentially elevating borrowing costs for businesses and the government alike.
As the high-interest-rate regime persists, its ripple effects on investment, debt sustainability, and economic growth will remain key areas of focus.