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Nigeria’s bond auction falls short as low interest rates deter investors



In a recent bond auction, Nigeria’s Debt Management Office (DMO) faced a lukewarm response from investors, managing to secure just about half of its target amount.

 The office aimed to raise N2.5 trillion through the sale of seven and 10-year bonds but ended up with a subscription of N1.49 trillion.

Investors showed moderate interest in the seven-year bonds, subscribing to N873.5 billion, which is 69.6 percent of the intended amount.

The 10-year bonds were even less attractive, with only N621.38 billion subscribed, accounting for 49.6 percent of the offer.Financial analysts have pointed to the unappealing low-interest rates as the primary reason for the subdued investor appetite.

The stop rates for the seven and 10-year bonds were set at 18.5 and 19 percent, respectively. These rates are on par with the one-year Treasury bill, which is generally considered a safer option than the longer-dated bonds.

The bond stop rates are notably lower than the January inflation rate of 29.9 percent, as reported by the National Bureau of Statistics (NBS), making the bonds less attractive as an investment.

Portfolio managers have expressed their expectations for higher yields, similar to those seen in the Treasury bills auction, leading them to bid at rates above the stop rates for the bonds.

An economist at BancTrust & Co, Omobola Adu, remarked that the rate offered for the seven-year maturity did not generate significant interest from investors.

He also noted that investors are currently observing the Monetary Policy Committee’s (MPC) decisions and the potential future direction of interest rates before committing to longer-term investments.

Rising inflation is piling pressure on the CBN to hike rates at a meeting later this month.

The current benchmark interest rate stands at 18.5 percent with analysts expecting a 300 basis points hike by the CBN when the Monetary Policy Committee meets on February 26 and 27.

Sources familiar with this said that Tier one banks that were debited in excess of the 32.5 percent cash reserve ratio were refunded ahead of the auction

Banks are to have 32.5 percent of their deposit with the CBN, but during Emefiele’s tenure, there were arbitrary CRR debits, though Cardoso has tried to normalize with a bit of refund from time to time.

“He has also done some arbitrary debits in trying to manage the FX crises linking the excess liquidity in the bank to that, also having more funds to play in the currency market. So banks go debited more than the 32 percent to as much as 50 percent,” a source mentioned.

He said that two weeks ago Cardoso mentioned that they are going back to the 32.5 percent CRR so they’ll be refunding banks that have been debited in excess of that amount.

The N2.5 trillion bond auction is the highest amount the government has attempted to raise in local bonds in one month and is seven times more than the N360 billion offered in January.

At the previous bond auction, a total of N418.2 billion was sold of the N360 billion put up. The 15-year bond was oversubscribed to the tune of N266.7 billion, nearly threefold the N90 billion that was offered.

Money market

Naira makes huge recovery, gains 7.2% against dollar



The Naira on Friday experienced huge appreciation at the official market, trading at N1,142.38 to the dollar.

Data from the official trading platform of the FMDQ Exchange, a platform that oversees the Nigerian Autonomous Foreign Exchange Market (NAFEM), revealed that the Naira gained N88.23.

This represents a 7.16 per cent gain when compared to the previous trading date on Monday, April 8, exchanging at N1,230.61 to a dollar before the Sallah holiday.

The total daily turnover increased to $281.34 million on Friday up from $125.55 million recorded on Monday.

Meanwhile, at the Investor’s and Exporter’s (I&E) window, the Naira traded between N1,265 and N1,100 against the dollar.

Economic experts have continued to praise both fiscal and monetary policies of President Bola Tinubu’s administration responsible for the steady Naira appreciation.

The CBN, during its policy meetings held in February and March, implemented a total of 600 basis points in interest rate increases.

This helped tackle dollar scarcity, reduced volatility, and decreased reliance on parallel markets.

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Money market

DMO to raise N450bn in April bond auction



The Debt Management Office (DMO) is seeking to raise N450 billion in its April bond auction billed to take place on April 15.

This is in line with the agency’s plan to raise up to N1.8 trillion through FGN bonds in the second quarter (Q2) of 2024.

The DMO is offering N150 billion for the new FGN APR 2029 five-year bond. It is offering N150 billion for the reopened FFBN FEB 2031 17-year bond and N150 billion for the FGN FEB 2034 10-year bond.

The auction will take place on April 15 and the settlement date is April 17, 2024.

FGN bonds are auctioned every month through the DMO, with the interest paid semi-annually. They are subject to a minimum subscription of N50,000,001 and in multiples of N1,000 thereafter.

FGN bonds are recognised as investment instruments for trustees under the Trustee Investment Act. They receive tax exemption benefits for pension funds because they’re considered government securities, as per the guidelines in the Company Income Tax Act (CITA) and the Personal Income Tax Act (PITA).

In Q1 2024, the DMO raised about N2.39 trillion through FGN bonds, with the largest issuance occurring in February.

In Q1 2024, the DMO raised about N2.39 trillion through FGN bonds, with the largest issuance occurring in February.

The DMO issued N418.2 billion of FGN bond in January, N1.49 trillion worth of FGN bonds in February 2024, with interest rates hitting 19 percent for the 10-year bonds. Then in March 2024, the DMO issued N475.7 billion at bumper interest rates, with rate hitting 20.45 percent on the 10-year bond.

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Money market

ABCON backs CBN’s prohibition of non export domiciliary account collateral for naira loans



The Central Bank of Nigeria (CBN’s) directive stopping the use of Non Export Domiciliary Account Collateral for naira loans will boost dollar liquidity, support reserves accretion and strengthen the financial services sector, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji (Dr.) Aminu Gwadabe has said.

According to the CBN directive to banks, the use of foreign currency-denominated collaterals for Naira loans is now prohibited, except in cases where the collateral is in the form of Eurobonds issued by the Federal Government of Nigeria or guarantees provided by foreign banks, including Standby Letters of Credit.

In a statement on the apex bank policy and impact on the forex market, Gwadabe described the move as a welcome development, expected to put the excesses of big businesses and manufacturers putting unnecessary pressure on the forex market  in check.

He said, “ABCON members are bewildered that some companies and manufacturers with billions of dollar balances in their non-oil export domiciliary accounts  use it as collateral for naira loans and still source forex in the official window thereby depleting what is available for other operators.

“The stoppage of this unprofitable practice will not only add to the dollar liquidity in the market but also help in the accretion of foreign reserves buffers,” he added.

Gwadabe advised the apex bank to review foreign currency holding guidelines for non-oil export domiciliary accounts proceeds and entrench maximum of 48 hours with a minimum balance of $5k for individuals and $50 k for companies in holding positions as practiced in South Africa.

ABCON chief further advised the CBN not to approve forex requests by manufacturers and other business applicants with billions of dollars holdings in Non export oil proceeds domiciliary accounts at both the NAFEM and NAFEX window.

ABCON boss explained that unfortunately, the BDCs are most times seen as crude but remain an effective market control mechanism with the potent transmission mechanism tool in achieving the CBN’s mandate of price stability and liquidity in the markets.

“We therefore urge the CBN to continue to drive and expand its operations to ensure that the best results now achieved in the last 15 years is maintained and  also ensure exchange rate convergence, market calmness and confidence of the public and foreign investors,” he said.

ABCON leadership, he added, has also called for and advocated for the separation of ownership and operational structures of FMDQ Exchange. The move, he said would ensure more transparency and effectiveness in market operations and price control mechanisms.

Furthermore, ABCON boss urged the CBN to allow legislative decisions on the planned reforms in the BDCs sub-sector to boost foreign investors’ confidence and guarantees in the sectoral transformation.

“We also want to pledge our continuing support to CBN’s proactive and effective policies and meant to address volatility and headwinds in the forex market. As a self regulatory body, ABCON is currently engaging all stakeholders and players in the retail  end market to deepen, liberalise, democratise and centralise the retail end segments of the market for price discovery, market efficiency, transparency, accretion of buffers and healthy balance of payments,” Gwadabe said.

“We applaud the CBN management for the reconsideration and reinstatement of the BDC sub-sector as third leg of the forex market to put hoarding and speculation under check and we have seen faster results than expected,” he stated.

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