Follow Us on Google
By Chinwendu Obienyi
The Debt Management Office (DMO) recorded another strong outing at its October Federal Government of Nigeria (FGN) bond auction, selling a total of N313.8 billion despite offering only N260 billion to investors.
The sale once again underscored investors’ sustained appetite for government securities amid abundant system liquidity and an increasingly dovish interest rate environment.
Total subscriptions at the auction rose slightly to N1.27 trillion, compared with N1.26 trillion recorded in September. Although demand remained robust, the bid-to-offer ratio eased to 4.89 times, from 6.30 times in the previous month, reflecting a marginal moderation in investor enthusiasm relative to the offer size.
The October auction featured two reopened maturities, the August 2030 and June 2032 bonds. Of the total bids received, the shorter-tenor Aug ’30 paper attracted N212.7 billion, representing about 17 per cent of overall demand. The DMO allotted N87.8 billion on this tranche, with the stop rate declining by 168 basis points to 15.83 per cent, indicating lower borrowing costs for the government.
In contrast, the Jun ’32 paper witnessed overwhelming investor interest, supported by its relatively higher yield and medium-term tenor. Subscriptions reached N1.1 trillion, translating to a bid-to-offer ratio of 8.14 times, far exceeding the overall auction average. However, the DMO allotted only N226 billion, with the marginal rate dropping to 15.85 per cent, down from 16.20 per cent at the September auction.
Other News
Commenting on the development, FBNQuest Merchant Bank says the moderation in stop rates reflects the combined effect of the Central Bank of Nigeria’s 50-basis-point policy rate cut in September and improving liquidity conditions in the financial system.
The apex bank’s dovish tilt has prompted a decline of over 200 basis points in stop rates across the last two auctions, signaling a broader downward adjustment in yields in the secondary bond market.
FBNQuest noted that the N4 trillion liquidity surplus in the banking system continues to fuel strong demand for government debt instruments, as investors seek safe assets amid limited alternative investment opportunities.
“The combination of ample liquidity and expectations of further monetary easing is sustaining bullish sentiment in the fixed-income market. Investors are still comfortable locking in double-digit returns on sovereign paper, especially in the medium-term segment”, the merchant bank said.
Despite the strong participation, the DMO maintained its conservative borrowing stance by allotting less than a third of total bids, a sales-to-bid ratio of 0.25 times, compared with 0.46 times in September. This cautious approach suggests the agency is prioritising cost efficiency over volume in its debt issuance strategy.
With yields trending lower, the bank expect secondary market trading to remain active in the near term, supported by robust demand from banks, pension funds, and asset managers. However, they caution that any reversal in inflation or monetary policy could temper the current bullish sentiment.
