H1 2024: Nigeria’s bond market sees over 4trn amid economic reforms
By Esther Agbo
In the first half of 2024, the Federal Government of Nigeria raised approximately N4.13 trillion through bond issuances, according to the FMDQ Exchange Financial Markets Monthly Report for June 2024. This fundraising effort reflects the government’s strategy to leverage the bond market for financing and indicates a strong demand for government securities.
June witnessed the lowest bond issuance of the half-year, with new issuances valued at N297.01 billion, a stark contrast to the peak of N1.49 trillion in February. The issuance values for other months were N418.20 billion in January, N608.86 billion in March, N628.81 billion in April, and N682.07 billion in May.
As of the end of June 2024, the total value of outstanding Federal Government of Nigeria (FGN) bonds, which includes savings and green bonds, stood at N26.22 trillion. This represents a significant 44.49 per cent increase from N18.15 trillion in June 2023.
The Debt Management Office (DMO) attributed the substantial bond issuance in February to the government’s financing needs, the opportunity to attract foreign investors, and the ability of local investors to access significant funds. February’s issuance included a N1.25 trillion seven-year bond maturing in 2031 and a N1.25 trillion ten-year bond maturing in 2034, receiving bids totaling N1.9 trillion and resulting in a record-high allotment of N1.49 trillion.
In the second quarter, seven bonds were reopened: two in April (FEB 2031 and FEB 2024), two in May (APR 2029 and FEB 2031), and three in June (APR 2029, FEB 2031, and MAY 2033). The interest rates on these bonds ranged from 18.50per cent to 19.89per cent.
By May, the DMO had raised N4.5 trillion of the Federal Government’s proposed N6 trillion bond target for 2024. DMO Director General Patience Oniha highlighted the resilience and sophistication of Nigeria’s domestic securities market, noting that N7 trillion was raised in new domestic borrowing last year.
The National Bureau of Statistics reported a surge in capital importation in Q1 2024, reaching $3.38 billion. This was driven by increased interest rates in Nigeria and rate cuts in advanced economies. Foreign portfolio investment (FPI) constituted 61.5per cent of the total capital imported in Q1 2024, a significant rise from 28.5per cent in Q4 2023. Total FPI inflows stood at $2.1 billion in Q1 2024, a remarkable increase from previous quarters.
The Central Bank of Nigeria’s recent hike in the Monetary Policy Rate is expected to elevate yields in the bonds market. Analysts anticipate this will make fixed-income instruments more attractive to investors, potentially drawing funds away from equities due to higher interest expenses and compressed profit margins for companies.
Finance Minister Wale Edun announced plans to issue a $500 million diaspora bond in Q3 2024. This initiative aims to attract investment from Nigerians abroad and those with overseas savings, demonstrating the government’s commitment to stabilising and growing the economy amid ongoing reforms.
