FGN bond auction records N1.63trn subscriptions in February amid declining yields
The Federal Government of Nigeria’s (FGN) bond auction for February 2025 saw a substantial increase in investor demand, with total subscriptions rising to N1.63 trillion, a notable jump from the N670.94 billion recorded in January.
This heightened interest resulted in a higher allotment, though at lower yields, signalling growing investor confidence in Nigeria’s debt market.
The auction, conducted by the Debt Management Office (DMO) on February 24, included the re-opening of the 19.30% FGN APR 2029 (5-year bond) and the 18.50% FGN FEB 2031 (7-year bond). Unlike the January auction, which included a 10-year bond, the February auction offered only two instruments.
The total amount initially offered for the bonds was N350 billion—N200 billion for the 5-year bond and N150 billion for the 7-year bond. However, due to strong demand, total allotments surged to N910.39 billion, significantly surpassing both the offer and the total allotment from the previous month.
In January 2025, the total amount initially offered across the three bond series—5-year, 7-year, and 10-year—was N450 billion. However, the total allotment stood at N601.04 billion, with the government responding to market demand by issuing more than initially offered, but still within a moderate range. The January breakdown showed N78.86 billion allotted for the 5-year bond, N153.87 billion for the 7-year bond, and N368.31 billion for the 10-year bond.
In contrast, the February auction offered only N350 billion, but the total allotment nearly doubled to N910.39 billion, an increase of 51.5% compared to January’s total allotment.
The 5-year bond received an allotment of N305.36 billion, nearly four times the amount allotted in January, while the 7-year bond saw an even more dramatic rise, with an allotment of N605.03 billion, almost quadrupling its January level. The absence of a 10-year bond in February likely contributed to the redistribution of funds into the shorter-tenor instruments.
This surge in allotments, despite a lower initial offer, suggests that investor confidence in FGN bonds has strengthened significantly. This could be attributed to several factors, including improved market liquidity, expectations of lower inflation, and the potential for a more stable interest rate environment.
The sharp decrease in marginal rates between January and February further supports this narrative. In January, the 5-year bond carried a marginal rate of 21.79%, while the 7-year bond was auctioned at 22.50%. By February, these rates had fallen to 19.20% and 19.33%, respectively, a decline of over 250 basis points for both instruments.
A major factor behind this shift could be changing expectations regarding Nigeria’s inflation and monetary policy. Lower bond yields typically signal that investors perceive reduced risks and are willing to accept lower returns in exchange for safety.
The strong participation in the February auction suggests that large institutional investors, such as pension funds and asset managers, had excess liquidity to deploy, further compressing yields.
The results of the February auction highlight a more favourable borrowing environment for the government, as the lower marginal rates mean the cost of debt issuance has decreased. This could ease fiscal pressures in the short term, particularly as Nigeria continues to navigate macroeconomic challenges.
However, the significantly larger allotment in February compared to the initial offer raises questions about future borrowing trends. If the government continues to issue bonds beyond initial projections to meet its financing needs, it could lead to concerns about debt sustainability and potential upward pressure on yields in the long run.
For investors, the lower yields may result in reduced returns compared to previous auctions, but the high subscription levels indicate that FGN bonds remain an attractive investment option, particularly in a volatile macroeconomic environment.
