FG Raises N5.85tn from Bonds Market as Interest on 30-year Paper Drops to 17.15%

Kayode Tokede

Following the need to bridge budget deficit, the federal government through the Debt Management Office (DMO) has so far raised a whopping sum of N5.85 trillion via the Bond market in 2023.

THISDAY had reported that the federal government through the DMO raised N3.06 trillion from the FGN Bond market in 2022.

The monthly FGN bond auction tracked by THISDAY revealed that investors total subscription to FGN bond stood at N7.43 trillion in 2023 as investors tend to invest in risk-free instruments.

At the beginning of the year, the DMO planned to raise N360billion monthly, translating into N4.32trillion in 12 months, however, offers so far have been oversubscribed by 58.2 per cent with the debt office allocating N5.85 trillion to investors.

Investors keen interest in FGN bond is on the backdrop of double-digit inflation that has played a significant role in domestic and foreign investors sentiment and 2023 general election tensions.

The DMO since January 2023 has continually re-open some FGN Bonds and steadily hike its interest rate to attract investors amid inflation rate.

Analysis of the just concluded auction revealed that the DMO dropped rate on 30-year FGN bond to 17.15 per cent from 18 per cent in November auction despite rising inflation rate.

DMO offered to raise N90 billion from its 15.70% FGN JUN 2053 (30-year), but investors staked N545.18 billion out of which N211.52billion was eventually allotted.

The 30-year FGN bond recorded the highest bids of 318, and 125 successful bids by investors.

In all, the December result revealed that DMO auctioned four FGN bonds, which included: 14.55% FGN APR 2029 (Re-opening, 10-Year Bond); 14.70% FGN JUN 2033 (Re-opening, 10-Year Bond), 15.45% FGN JUN 2038 (Re-opening, 15-Year Bond) & 15.70% FGN JUN 2053 (Re-opening, 30-Year Bond).

The FGN bond market in 2023 consistently witnessed increased participation by Pension Funds Administrators (PFAs) as double-digit inflation rate eroded investment in money and capital market instruments. 

Consequently, the pension funds industry portfolio in the FGN Bonds increased to N10.84 trillion as of September2023, as reported by the National Pension Commission (NAICOM) revealed.

Finance analysts attributed the strong demand for FGN bond to attractive yield, which offers investors high returns on their investments, stressing that the oversubscriptions also revealed that investors have confidence in the federal 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.

“But some analysts attributed the under subscription to some issuances to fear of interest rate risk, “as investors are full well informed that economy is still very much challenged and that inflationary pressure remains unabated.

“So, investors expect higher yield for this particular issuance, while the government does not wish to borrow at higher interest rate,” said CEO, Wyoming Capital and Partners, Mr. Tajudeen Olayinka.

Meanwhile, in recent years, Nigeria’s rising debt profile has been a topic of concern, as Vice President, Highcap Securities Limited, Mr. David Adnori, warned that the country’s debt levels are unsustainable.

According to Adnori, “Ways and means” refer to the CBN’s lending to the federal government. The DMO said that the “securitization of ways and means” is not unusual and is a common practice in many countries, but it is not a decision that can be made by the DMO alone.”

Adnori expressed concerns that Nigeria’s rising debt levels could become unsustainable if not managed properly.

On his part, a Professor of Finance and Capital market, Uche Uwaleke at a conference in Lagos called on the need for the government to unlock the huge potential of long-term financing inherent in the capital market and ensure borrowings tied to infrastructure bonds.

He said this became necessary for the nation’s economy to grow steadily at 16 per cent per annum over the next six years to attain the projected $1 trillion economy by 2030.

Uwaleke stated that with the nation’s infrastructure investment need which had continued to widen, and government debt profile which is substantially high, mobilising long-term financing through the capital market and deploying domestic market borrowings into infrastructure bonds had become critical to achieving the target.

He added that financing this huge infrastructure gap presents a formidable challenge to the government given Nigeria’s low revenue-to-GDP ratio of less than 10 per cent making inevitable the capital market route.

However, Uwaleke pointed out that the nation’s capital market is currently beset with myriads of challenges, which had continued to constrain its full development despite giant strides achieved in the last two decades.

He noted that the extent to which the Nigerian capital market could facilitate economic development is a function of its level of development.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf had stated that the federal government notified the general public of borrowing more in 2023.

He said, “With all the volatility and foreign exchange issues, it makes sense to borrow at the domestic market rather than borrowing from the international market. It is all a reflection of our macro economy environment challenges and weak fiscal policy of the government. All this borrowing also is a reflection of the weak financial position of the government and it will continue like that.”