Despite a decrease in the amount offered, the Federal Government raised approximately N346.155 billion at its bond sale in November 2024, reflecting greater allotments.
The Debt Management Office (DMO) held the auction on November 18, 2024, and the 19.30% FGN APR 2029 (5-Year Bond) and the 18.50% FGN FEB 2031 (7-Year Bond) were reopened.
The total amount offered at the November auction was 33.33% less than in October.
The DMO offered each bond for N60 billion, down from N90 billion in October. Despite the reduced offerings, the total allotments increased by 19.50% to N346.155 billion from N289.597 billion in October.
N282.625 billion was allocated for the 7-year Bond, compared to N63.530 billion for the 5-year Bond. On the other hand, the 5-year and 7-year bonds received N57.237 billion and N232.360 billion, respectively, at the October auction.
Total number of subscribers
N120 billion was the total amount for auction, with N60 billion going to each bond series.
- Nevertheless, investor interest was far more than anticipated, with a 208% subscription rate and a total bid of N369.585 billion. The market’s desire for fixed-income instruments in the face of shifting macroeconomic conditions is demonstrated by this oversubscription.
- The overall number of subscriptions in November was N369.585 billion, a 5.06% decrease from October’s N389.321 billion. This indicates that investor demand was still high but somewhat tempered.
Subscriptions for the 5-year Bond increased from N60.737 billion in October to N75.560 billion. On the other hand, subscriptions for the 7-year Bond decreased from N328.584 billion to N294.025 billion.
Non-competitive allocation of N500 million
THE NEWS CHRONICLES noted that the Federal Government included a Non-Competitive Allotment in the November 2024 bond auction. This provision usually accommodates smaller-scale players and retail investors who want fixed-income exposure without directly competing on marginal rates.
- This allocation, which totaled N0.500 billion, was only used for the 19.30% FGN APR 2029 (5-Year Bond).
- This minimal allocation is a calculated addition that permits increased market involvement while preserving the auction’s principal objective of competitive bidding from institutional investors.
- Smaller investors can obtain government securities through non-competitive allotments at the same marginal rate decided upon during the auction without having to place competitive bids.
However, there was no non-competitive allocation for the 18.50% FGN FEB 2031 (7-Year Bond), indicating that the DMO gave competitive bids priority for this longer-term instrument, probably as a result of the stronger demand and significant subscription it received.
Bid ranges and marginal rates
As liquidity circumstances tightened, November saw an increase in marginal rates. The marginal rate for the 5-year bond jumped from 20.75% to 21.00% in October, while the rate for the 7-year bond increased from 21.74% to 22.00%.
Strong investor rivalry was also evident in the November bid ranges, with bids for the 5-year Bond ranging from 19.00% to 21.90% and for the 7-year Bond from 18.00% to 23.00%.
The increase in marginal rates points to a larger pattern of rising borrowing costs, which monetary policy changes and inflationary tendencies may impact.
What To Note
The overwhelming demand for the 7-year Bond over the 5-year Bond indicates a preference for longer-duration securities, most likely due to medium-term forecasts of persistently high interest rates.
- The stark difference between the amounts subscribed and awarded demonstrates the DMO’s strategic allocation to strike a balance between market stability and government finance needs.
- The smaller offer size at the November auction fits a potential plan to control borrowing levels while preserving market confidence. Despite fewer offerings, higher allotments indicate a proactive strategy to raise money for government initiatives in the face of growing borrowing rates.
The higher marginal rates and larger allotments demonstrate the government’s capacity to draw substantial investor interest despite market fluctuations. The persistent increase in borrowing costs, however, may affect budgetary dynamics and call for cautious funding distribution to vital industries.
