Nigeria’s Debt Management Office (DMO) sold N378 billion in FGN bonds yesterday despite facing higher than offered demand for the bonds, indicating the government is slowing down on borrowing cost.

Analyst at Afrinvest West Africa, Segun Adams said that at the auction DMO sold 1.52 times its offer.

“The decision to sell 44.2 percent of papers issued to non-competitive bidders suggests DMO’s mindfulness of the growing cost of borrowing on the Federal Government,” he said.

The DMO auctioned N450 billion FGN bonds yesterday across three tranches. It issued a new nine-year bond and reopened a five and seven tenure at N150 billion each.

Preference was given to the new 9-year bond selling N285.12 billion, even though it was oversubscribed to the tune of N551.32 billion at a stop rate of 19.89 percent.

Adams said that it’s a trend we should expect for the near term as DMO attempts to manage its pressure on the fiscal side.

DMO sold N32.67 billion and N62.98 billion barely 40 percent of the initial offer on the 5-year and 7-year offer despite getting over N170 billion on both bids.

Analysts at CardinalStone explained in its most recent monthly fixed income report that at the long end (bond), they expect yield increases to be tamer.

This view is premised on the government’s decision to frontload a substantial part of its 2024 borrowings in the first quarter.

“Specifically, the Q2 ’24 bond auction calendar suggests that the government should raise between N300 billion — N600 billion monthly compared to the 2.5 trillion borrowings in Q1’24,” the report said.

The N2.5 trillion bond auction is the highest amount the government has attempted to raise in local bonds in one month.

The stop rates of the five and seven-year bonds were 19.29 and 19.74 percent respectively, which is marginally less than the stop rate on the one year Treasury bill considered less risky than longer-dated bonds.

The stop rate on the bonds is also well below the March inflation rate of 33.2 percent as price pressures remained prevalent in Nigeria.

The current benchmark interest rate stands at 24.75 percent, a 600 basis point increase from 18.75 at the beginning of the year.

At the previous bond auction a total of N626 billion was sold of the N450 billion put up.

The naira on Tuesday continued its free fall across the foreign exchange (FX) market, depreciating to a new low of 1,530 per dollar on the parallel market, also known as the black market.

This represents 0.98 percent (N15/$1) depreciation compared to N1,515 quoted on Monday on the black market.

The renewed naira depreciation after the gains in April 2024 was attributed to a shortage of dollars occasioned by the repatriation of funds by foreign portfolio investors (FPIs).

FX trading at the Nigerian Autonomous Foreign Exchange Market (NAFEM) witnessed a depreciation in the value of the local currency by 0.79 per cent as the dollar was quoted at N1,478.11 on Monday, weaker than N1,466.31 quoted on Friday.

Dollars supplied by willing sellers and willing buyers increased significantly by 91.28 percent to $217.64 million on Monday from $113.78 million recorded on Friday.

The intraday high closed at N1,515 per dollar on Monday, weaker than the N1,490 closed on Friday. The intraday low appreciated to N1,301/$1 as against N1,322/$1 on Friday.

The Naira was able to extend its appreciation from mid-March till mid-April, before the recent decline. The naira however closed flat against the dollar in April appreciation only by about 0.04 percent in the official market, according to a report.

A report by Comercio Partners noted that the transition from a managed fixed to a floating exchange rate regime resulted in a depreciation of the naira, with significant volatility leading to a low of N2,000/1$.

This continuous depreciation may have prompted the Central Bank of Nigeria (CBN) to take action to support the exchange rate by increasing the monetary policy rate (MPR).

In February 2023, the CBN, under the administration of Cardoso, implemented the first-rate hike, raising the MPR by 400 basis points to 22.75 percent. This was followed by an additional increase in March, raising the MPR by 200 basis points to 24.75 percent. These hikes in interest rates coincided with a strengthening of the naira, which appreciated to as high as N1,150/$1, the report stated.

The temporary stability occurred due to CBN interventions aimed at curbing speculation on the Naira by banks and other parties, such as the prohibition of Foreign Currency Collaterals for Naira Loans and directives to international money transfer operators (IMTOs) to align their exchange rates with prevailing market rates at the official foreign exchange market.

“The CBN might apply the same strategy of maintaining its hawkish stance to give the exchange rate more strength, particularly since it has seen some commendable results given that the naira currency was one of the best-performing currencies in April,” analysts at Comercio Partners said.