The February 2031 (seven-year) bond reached a record stop rate of 22% at Monday’s Federal Government of Nigeria (FGN) bond auction. This marks a 26-basis-point increase from the previous auction rate of 21.74%.
Atiku Audu, Chief Investment Officer at ARM Pension Managers, described the new rate as an “oxymoronic gift” given expectations of reduced bond issuance. “The Feb 31s closing at 22% is unprecedented,” he remarked on LinkedIn.
The Debt Management Office (DMO) offered N60 billion worth of the bond but sold N282.63 billion—nearly four times its initial offer—due to oversubscription. Ibrahim Tajudeen, Director of Research and Strategy at Chapel Hill Denham, explained that the DMO raised rates to compensate for the high demand, with bids totalling N294 billion.
“The increase reflects both high inflation and the DMO’s effort to move closer to positive real returns,” Tajudeen noted. While real returns remain negative, October’s inflation rate of 33.88% continues to drive expectations for further monetary tightening.
The February 2031 bond has now reached N1.795 trillion in total issuance, edging close to the N1.8 trillion mark—a record in the history of Nigeria’s bond market. Audu speculated that the bond might be excluded from future auctions to limit supply. “If taken off the calendar, reduced supply could spur a rally,” he said.
The DMO’s total FGN bond sales on Monday amounted to N346.16 billion, triple its offer of N120 billion, which was the lowest so far this year. Uduak Jacob, Portfolio Manager at Comercio Partners Asset Management, highlighted the perception of limited supply created by the DMO’s consistent reduction of offer sizes since August.
“Despite lower advertised amounts, the DMO has consistently sold well above its circular offers,” Jacob said, attributing the oversubscription to attractive rates and reinvestments from FGN 2033 coupon proceeds.
Fixed-income yields have risen steadily throughout the year, driven by inflation and FX pressures. The Monetary Policy Committee has increased the Monetary Policy Rate (MPR) by over 850 basis points in 2024, keeping demand for bonds robust.
Samuel Gbadebo, Fixed-Income Analyst at CardinalStone Limited, linked the reduced bond supply to the government nearing its borrowing target for the year, allowing the DMO to secure more favourable rates. He also noted that the trend of oversubscription and high yields suggests strong investor interest in long-dated instruments.
The DMO’s other offerings included N63.53 billion worth of April 2029 (five-year) bonds, with stop rates rising to 21%, slightly below one-year Treasury bill rates.
Credit: Businessday (Text Excluding Headline)
