By FBNQuest Research
Today, analysts examine Monday’s monthly FGN bond auction, conducted by the Debt Management Office (DMO).
At this auction, the agency offered N100bn worth of bonds to investors, split equally across two maturities, April 2029 and June 2032.
The offer size was significantly lower than the N300bn amount offered at its previous auction. The auction attracted significant investor interest, with total bids reaching N602.9bn.
This marks a sharp increase from the total subscriptions of N436.3bn received in the previous auction. Despite the robust demand, the DMO decided to match the amount on offer, with sales totalling N100bn. Investment Financial products
Encouraged by the overwhelming interest, the DMO lowered marginal rates across both tenors, as stop rates for the April 2029 and June 2032 tenors were fixed at 17.75% and 17.95%, respectively.
The downward shift in yields reflects improved market sentiment and lower inflation readings, with the annual headline inflation declining for the second consecutive month to 22.79% year-on-year (YoY) in May, down from 23.71% YoY in April.
Consequently, the Monetary Policy Committee (MPC) has held policy rates steady for two consecutive meetings, with the market now pricing in a cumulative rate cut of 50 bps to 100 bps by year-end.
However, rising global uncertainty amid the conflict between Iran and Israel and President Trump’s tariff actions, along with heightened global risk-off sentiment, will likely support the MPC’s case of holding rates for a prolonged period.
As widely expected, the reopened April 2029 paper saw weak interest, with a total bid of N41.7bn tracking below the offer size of N50bn. Consequently, the total allotment amounted to nearly N1.1bn.
Conversely, investors showed strong interest in the June 2032 paper, signalling a preference for long duration and high returns, as investors lock in to higher rates.
Consequently, total subscriptions for the June 2032 tenor reached N561.2bn, outpacing the offer size of N50bn, resulting in a bid-to-offer ratio of 11.2x. However, the agency decided to generate a lower sales amount of approximately N99bn.
In the secondary market, sentiment has been largely bullish, as investors continue to take advantage of elevated rates. Month-to-date, average bond yields declined by -42 bps to 18.44%.
