The federal government raised N297.006 billion in the June bond sale, which was just approximately 66% of its objective.
Compared to the N380.769 billion raised in May, the amount raised in June is around 22% less.
Subscriptions across all tenors totaled N305.257 billion, a significant decrease from the N551.316 billion reported in the previous month.
Amidst a backdrop of cautious market mood, the Debt Management Office (DMO) issued the auction results for the June 2024 bond auction, which showed a shift in investor preferences towards higher-yielding and longer-tenor bonds.
Three Federal Government of Nigeria (FGN) bonds were reopened at the June 24, 2024, auction: the 19.30% FGN APR 2029, the 18.50% FGN FEB 2031, and the 19.89% FGN MAY 2033.
The entire subscription was N305.257 billion, whereas the total amount allotted was N297.006 billion, indicating a considerable undersubscription, despite offering a total of N450 billion across these bonds.
Dissection of the bond auction outcomeÂ
19.30% FGN APR 2029 (5-Year Bond)
The N150 billion five-year bond, 19.30% FGN APR 2029, was only able to achieve a subscription of N22.225 billion through 37 bids, 36 of which were successful. This shows an undersubscription rate of almost 85%, which denotes a substantial discrepancy between investor interest and the quantity supplied. This bond’s marginal rate ended at 19.64%, marginally higher than its coupon rate of 19.30%. This implies that even for securities with shorter maturities, investors request higher yields. In the end, N22.125 billion was allocated, indicating that investors were wary of short-term bonds.
18.50% FGN FEB 2031 (7-Year Bond)
In the medium-term sector, N150 billion was offered for the 7-year bond, 18.50% FGN FEB 2031, which also received subscriptions of N53.483 billion from 49 bids, 40 of which were successful. This leads to a roughly 64% undersubscription rate. Compared to its coupon rate of 18.50%, this bond’s marginal rate of 20.19% was higher, suggesting that investors are demanding more returns on their medium-term investments. In the end, the DMO allocated N45.383 billion, far less than the amount that was proposed, indicating more medium-term investor caution.
19.89% FGN MAY 2033 (9-Year Bond)
The 9-year bond, 19.89% FGN MAY 2033, garnered the most amount of interest, drawing N229.549 billion in subscriptions from 159 bids, of which 158 were successful. This suggests a roughly 53% oversubscription rate, which is much higher than the N150 billion that was given. Out of the three tenors, the marginal rate was the highest at 21.50%, while the coupon rate was 19.89%. The N229.498 billion sum allocated shows a strong demand for long-term bonds with higher returns. Roughly 77% of all subscriptions went towards this bond alone, indicating a strong preference among investors for longer-term assets.
These numbers show that, in the face of shifting economic conditions, investors are taking a strategic but cautious approach, preferring longer-term bonds with higher yields but being hesitant about shorter-term assets.
Things To Note
The outcomes of the bond auction held in June 2024 reveal a significant shift in investor attitude, with a clear preference for higher-yielding, longer-tenor bonds.
Investors may be trying to lock in greater yields in the face of uncertainty, as seen by the decreased demand for bonds with shorter maturities and the tremendous interest in assets with longer maturities.
This pattern is consistent with the overall state of the economy, as investors seek government securities that offer steady and alluring returns.Â
