The Federal Government of Nigeria has raised N374.751 billion in its August 2024 FGN bond auction.
This is according to the auction result released by the Debt Management Office (DMO) on its website.
After about three months of declining allotments, the total amount allotted in August 2024 was 66.05% higher than the N225.714 billion recorded in the previous month.
Although there was a 36.67% decline in total bond offer to N190 billion for the August auction, total subscription surged by 64.57% to N460.182 billion.
The auction, held on August 19, 2024, attracted strong interest from investors, showing a renewed demand for government debt instruments, particularly those with longer tenors.
Investors’ continued interest towards longer tenors in August drove the overall higher subscription levels.
Breakdown of the Auction Result
This auction featured three distinct bonds with tenors of 5 years, 7 years, and 9 years, marking a critical moment in Nigeria’s efforts to secure funding for ongoing national projects.
- 19.30% FGN APR 2029: The 5-year bond, offering a coupon rate of 19.30%, received a lukewarm response from investors, with a subscription level of only N24.349 billion, significantly below the offered amount of N70 billion. As a result, N18.349 billion was allotted at a marginal rate of 20.30%. This undersubscription by 65.22% suggests that investors are less interested in shorter-tenor bonds, likely due to their lower yield and shorter duration.
- 18.50% FGN FEB 2031: The 7-year bond saw moderate interest from investors, with a subscription of N60.750 billion, just shy of the offered amount of N70 billion. Ultimately, N42.189 billion was allotted at a marginal rate of 20.90%. This bond, with a coupon rate of 18.50%, was undersubscribed by 13.21%, indicating a fair level of confidence in medium-term government securities, though not as robust as the demand for longer tenors.
- 19.89% FGN MAY 2033: The 9-year bond emerged as the clear favourite among investors, with a subscription of N375.083 billion, despite the lower offered amount of N50 billion. The bond was allotted N314.213 billion at a marginal rate of 21.50%, reflecting a significant oversubscription of 650.17%. This bond’s appeal lies in its longer tenor and higher yield, which appear to align with investors’ strategies to secure higher returns in a potentially volatile economic environment.
What you should know
Demand for FGN bonds declined for three months, from May to July 2024.
However, there appears to be renewed demand based on the auction result for August 2024.
As usual, there is a clear investor preference for longer-term bonds, as evidenced by the overwhelming subscription to the 9-year bond.
This preference may be driven by a desire to lock in higher yields over an extended period, particularly in the face of potential inflationary pressures and economic uncertainties.
On the other hand, the lower subscription rates for the 5-year and 7-year bonds suggest that investors are more cautious about committing funds to shorter-term instruments.
The marginal rates—ranging from 20.30% for the 5-year bond to 21.50% for the 9-year bond—indicate that the government is willing to offer competitive returns to attract funding.
Moreover, the success of this auction provides the government with a critical infusion of funds, which can be directed toward infrastructure development, debt servicing, and other essential national projects.
It also signals to the market that Nigeria remains an attractive destination for investment, even as it navigates complex economic challenges.