Nigeria Raises N289.6 Billion in October Bond Auction Amid Rising Marginal Rates

The Federal Government of Nigeria successfully raised N289.597 billion from its October 2024 bond auction, surpassing the initial offer of N180 billion, according to the Debt Management Office (DMO).

This marked a notable increase in investor participation, even as inflationary pressures persist and interest rates rise.

The October auction, held on October 21, featured two re-opened tranches of existing bonds: the 19.30% FGN APR 2029 (5-year bond) and the 18.50% FGN FEB 2031 (7-year bond). Despite offering a lower amount than in September, the government capitalized on robust demand to raise significantly more than expected.

Higher Allotment Despite Lower Offering

In September, the government offered N190 billion, spread across three bonds. However, in October, the offering was reduced to N180 billion, with N90 billion allocated to each of the 5-year and 7-year bonds. Despite the lower offering, the total allotment surged to N289.597 billion.

The 5-year bond attracted N60.737 billion in subscriptions, while the 7-year bond saw a sharp increase in bids, with total subscriptions reaching N328.584 billion. Total subscriptions for October amounted to N389.321 billion, a considerable rise from the N293.097 billion recorded in September.

Marginal Rates Rise Amid Inflationary Pressures

The auction also saw a significant rise in marginal rates as investors sought higher yields to offset inflation risks. The 5-year bond’s marginal rate climbed to 20.75%, up from 19.00% in September, representing a 9.2% increase. Meanwhile, the 7-year bond’s marginal rate rose to 21.74%, compared to 19.99% in the previous month, marking an 8.8% increase.

The Increase in rates underscores the government’s challenge in managing borrowing costs in a high-inflation, tight-monetary-policy environment. Investors are demanding greater returns for their investments as inflationary concerns and evolving fiscal conditions drive expectations for higher yields.

Government Balances Financing Needs and Borrowing Costs

While the increased allotment shows the government’s ability to secure capital, the rising marginal rates point to growing borrowing costs, which may complicate future debt management. The government will need to navigate this environment carefully to avoid unsustainable financing terms as it continues to raise capital to meet its fiscal needs.

The higher yields suggest that investors are pricing in continued inflation and tighter monetary policies, which could further influence the government’s debt strategy in the months ahead.

The settlement date for the October bond auction is set for October 23, 2024. With borrowing costs on the rise, the Federal Government’s ability to maintain favourable terms for future debt issuance will be crucial in managing its fiscal responsibilities sustainably.

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