FG raised over N4tn via bonds in six months — Report

The Federal Government has raised about N4.13tn from bonds in the first half of 2024.

This was revealed in the FMDQ Exchange Financial Markets Monthly Report for June 2024.

The value of new issuance of FBN bonds for June, which was N297.01bn, was the lowest in six months and the highest was N1.49tn in February.

In January, the value of FGN bonds issued was N418.20bn, N608.86bn in March, N628.81bn in April and rose to N682.07bn in May.

At the end of June 2024, the value of outstanding FGN bonds, which includes savings and green bonds, stood at N26.22tn, which is about 44.49 per cent higher than at the end of the same period in June 2023 (N18.15tn).

For the February bond issuance, the Debt Management Office said the relatively large amount offered was based on the FGN’s financing need, the opportunity to attract foreign investors, as well as, the premise that some local investors may be able to access pools of funds.

The Federal Government offered a N1.25tn seven-year FGN bond maturing in 2031 and another N1.25tnn 10-year FGN bond maturing in 2034 in February.

It received total bids of N1.9tn, making it the highest it has received in any one FGN Securities Auction and allotted N873.53bn for the seven-year bond and N621.38bn 10-year bond, making a total allotment of N1.49tn.

In the second quarter, there were seven reopened bonds; two in April (FEB 2031 and FEB 2024), two in May (APR 2029 and FEB 2031) and all the bonds issued in June were re-openings (APR 2029, FEB 2031 and MAY 2033, which was issued a month earlier).

The interest rates on the bonds ranged from 18.50 per cent to 19.89 per cent.

As of May, the DMO has an outstanding N1.5tn to raise from the Federal Government’s proposed N6tn bond having already raked in N4.5tn from previous issuances.

The Director General of the Debt Management Office, Patience Oniha, at an interactive session with primary dealer market makers in Lagos, noted that domestic securities remained a major source of Federal Government spending.

She said, “Last year, we raised N7tn as new domestic borrowing. It speaks to the size of the domestic market, its resilience, and its sophistication, unlike we have in many African markets.

“Out of the new domestic borrowing of N6tn we have raised N4.5tn. For the Ways and Means, out of N7tn approved for securitisation, we have raised N4.9tn.”

Since the beginning of the year, investors have shown interest in the long-term FGN bond. The report on capital importation for Q1 2024 released by the National Bureau of Statistics, showed that it rose to the pre-pandemic high, hitting $3.38bn in the first quarter of 2024, on the back of interest rate hikes in Nigeria and rate cuts in advanced economies.

A closer look at the report showed that foreign portfolio investment contributed the bulk of the total capital imported into Nigeria in Q1-2024, accounting for 61.5 per cent higher than the 28.5 per cent contribution in Q4-2023.

Total FPI inflows stood at $2.1bn in Q1-2024, 570.1 per cent higher than $309.8m in Q4-2023 and 219.7 per cent higher than $649.3m in Q1-2023.

With the recent hike in the Monetary Policy Rate by the Central Bank of Nigeria, analysts were of the view that it would lead to an upward repricing of fixed-income instruments, especially short-term assets, ranging from treasury bills to commercial papers, which would naturally make these investments more attractive to investors compared to stocks.

“This trend is evident from the recent treasury bills auction, where the average stop rates across all instruments rose by 172bps to 20.0 per cent. Additionally, we anticipate an elevated yield in the bonds market, though at a moderate pace.

“Conversely, pressure on interest expense and profit margins could dull the outlook on corporate earnings, leading to subdued equities sentiment — other things equal. This might be a push factor to the fixed income space, while attractive yields pull investors in,” analysts at Afrinvest said in their weekly market report.

Meanwhile, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said that Nigeria planned to issue a diaspora bond of up to $500m as part of its strategy to stabilise and grow the economy.

According to the minister, the domestic dollar-denominated bond, set for issuance in the third quarter, aims to attract investment from Nigerians living abroad and those with savings held overseas but also to demonstrate the strength and resilience of the economy amidst ongoing economic reforms.