The Federal Government of Nigeria (FGN), through the Debt Management Office (DMO), will be conducting a bond auction today.
The indicated total amount on offer is N450.00 billion from three issues. The instruments include one new issue (Mar-27): FGN March 2027 N150.00 billion; FGN February 2031 N150.00 billion and FGN February 2034 N150.00 billion.
Dealers from Meristem Securities said at the last Primary Market Auction (PMA) held in February, the DMO introduced two new instruments – February 31 and February 34 – offering a total of N2.50 trillion (N1.25 trillion on each instrument).
Due to the higher offer amount, the PMA saw higher investor participation as subscription more than tripled, printing at N1.90 trillion (vs N604.56 billion at the previous auction in January).
Also, the amount allotted was significantly higher as it rose to N1.49 trillion (vs N418.20 billion in January).
However, the bid-to-cover ratio fell to 1.27x from 1.45x in January, reflecting a higher allotment amount compared to the last auction. Consequently, the marginal rates on the February 31 and February 34 printed at 18.50 percent and 19.00 percent, respectively.
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Meristem stated in a note to clients that in the upcoming auction, “we anticipate an uptrend in rates across the offered instruments. We expect the recent upward adjustment (400bps) in the Monetary Policy Rate (MPR) by the Central Bank further to spur investors’ demand for higher rate at the auction.
“Additionally, the results of the Treasury Bills Primary Market Auctions during the month, underscores investors’ appetite for higher returns.”
Moreover, the central bank’s commitment to liquidity management and its efforts to maintain appealing rates on government securities, particularly to attract foreign investors, along with the government’s preference for domestic borrowing to address fiscal deficits, suggest a strong rationale for a possible uptick in interest rates.
In the secondary market, the sentiment has remained largely bearish since the last auction as the average bond yield rose to 18.33 percent as at March 14, from 16.12 percent at the last auction date.
Dealers expect this sentiment to persist in the near term as investors remain inclined towards seeking higher returns.