The federal government has raised N297.006 billion from the June bond auction, which is only about 66% of its target.
The amount raised in June is approximately 22% less than the N380.769 billion raised in May.
The total subscription across all tenors reached N305.257 billion, far lower than the N551.316 billion in subscriptions recorded in the previous month.
The auction result released by the Debt Management Office (DMO) for the June 2024 bond auction revealed a shift in investor preferences towards higher-yielding and longer-tenor bonds, amidst a backdrop of cautious market sentiment.
The auction, which took place on June 24, 2024, featured the re-opening of three Federal Government of Nigeria (FGN) bonds: the 19.30% FGN APR 2029, the 18.50% FGN FEB 2031, and the 19.89% FGN MAY 2033.
Despite offering a total of N450 billion across these bonds, the total subscription amounted to N305.257 billion, and the total amount allotted was N297.006 billion, highlighting a significant undersubscription.
Breakdown of the bond auction result
19.30% FGN APR 2029 (5-Year Bond): The 5-year bond, 19.30% FGN APR 2029, offered N150 billion but garnered a relatively modest subscription of N22.225 billion across 37 bids, with 36 successful bids. This represents an undersubscription rate of approximately 85%, as the total subscription fell significantly short of the offered amount.
The marginal rate for this bond settled at 19.64%, slightly above its coupon rate of 19.30%, reflecting investor demands for higher yields even for shorter tenors.
The total amount allotted was N22.125 billion, indicating a cautious approach by investors toward shorter-term securities.
18.50% FGN FEB 2031 (7-Year Bond): In the medium-term segment, the 7-year bond, 18.50% FGN FEB 2031, also offered N150 billion and saw a subscription of N53.483 billion from 49 bids, with 40 bids being successful. This translates to an undersubscription rate of approximately 64%.
The marginal rate for this bond was higher at 20.19%, compared to its coupon rate of 18.50%. The DMO allotted N45.383 billion, far below the offered amount.
19.89% FGN MAY 2033 (9-Year Bond): The most substantial interest was observed in the 9-year bond, 19.89% FGN MAY 2033, which attracted N229.549 billion in subscriptions from 159 bids, with 158 successful. This indicates an oversubscription rate of approximately 53%, significantly exceeding the offered amount of N150 billion.
The marginal rate was the highest among the three tenors at 21.50%, compared to the coupon rate of 19.89%. The total amount allotted was N229.498 billion, indicating a robust appetite for long-term bonds offering higher yields.
This bond alone accounted for a significant portion (about 77%) of the total subscriptions, highlighting a clear investor preference for longer-term securities.
What you should know
- The June 2024 bond auction results reflect a notable trend in market sentiment, with investors displaying a marked preference for high-yield, longer-tenor bonds.
- The reduced demand for shorter-tenor bonds and the overwhelming interest in longer-term securities suggest that investors are seeking to lock in higher yields amidst uncertainty.
- This trend aligns with the broader economic environment, where investors are looking for stable and attractive returns in government securities.