According to findings, the Debt Management Office (DMO) received N5.42 trillion total subscription as against N2.88 trillion offered during the period amid monetary policy tightening by the Central Bank of Nigeria (CBN) and global uncertainties.
Analysis of bond market activity during the period revealed that FGN bonds recorded 53 per cent oversubscription as interest rates continued on a steady trajectory.
The DMO conducted four auctions in 2023, which were oversubscribed despite the hike in inflation rate and investors’ diversification into the stock market.
While the information on the buyers of corporate bonds are publicly disclosed, other publicly available reports indicate Pension Fund Administrators (PFA), asset managers, banks, and institutional/foreign investors are among the largest buyers of FGN Bonds.
The auction results released by DMO indicate strong investors’ demand for FGN bonds, as the total amount allotted exceeded the total amount offered. It also suggests investor confidence in the Nigerian economy and the ability of the government to meet its debt obligations.
A breakdown showed that in the first quarter (Q1) of 2023, a total subscription to FGN bond stood at N2.61trillion while the DMO allotted N1.996 trillion out of the N1.080 trillion offered to investing public.
In the second quarter of 2023, investors were also offered N1.080 trillion FGN bond, it witnessed N2.503 trillion subscriptions. The DMO eventually allotted N2.23 trillion.
At the just concluded FGN bond auction in August, the four instruments were 14.55 per cent April 2029 FGN bond; 14.70 per cent June 2033 FGN bond; 15.45 per cent June 2038 FGN bond; and 15.70 per cent June 2053 FGN bond. They were valued at N90 billion each, making a total offer of N360 billion.
In spite of current market conditions, the auction received a total subscription of N312.56 billion, and the amount allotted to successful bidders for the four instruments was N230.26 billion.
Investors’ appetite for the 15.70 June 2053 (30-year bond) remained strong, with a bid-to-cover ratio of 2.71 times.
Allotments were made at 13.85 per cent for the 14.55 per cent April 2029 instrument and 15.00 per cent for the 14.70 per cent June 2033 instrument.
Also, “15.20 per cent was for the 15.45 per cent June 2038 instrument and 15.85 per cent for the 15.70 per cent June 2053 instrument,” the DMO said.
The federal government had proposed to borrow over N11 trillion to finance the proposed 2023 budget deficit.
Findings by Economic Confidential revealed that FGN Bonds auctioned were re-openings with rates below the inflation rate.
The debt office in 2023 maintained four tenor bond auctions between January and June, and each FGN bonds offer was oversubscribed.
Meanwhile, finance experts have attributed the strong demand for FGN bonds to attractive yields, which offer investors high returns on their investments.
They added that the oversubscription also revealed that investors have confidence in the government’s ability to meet its debt obligations.
The appetite for FGN bonds indicates that PFAs and Nigerian investors prefer investment instruments with less volatility that assures them of their capital returns, albeit with low yield on investment.