FG first 2018 bond auction oversubscribed by 136%

Latest information from the Debt Management Office (DMO) has shown that the federal government’s first bond offer for the year – 2018 was oversubscribed by a total of N150 billion, a subscription rate of 136 per cent.
The subscription level was higher for the 10-year benchmark bond, which indicates investors’ preference for longer dated instruments in Nigeria.
The Debt Management Office (DMO) conducted its FGN Bond Auction for January 2018 on Wednesday of this week. Two different bonds were offered: the 14.50 per cent FGN, which is to mature by July, 2021 and the 16.2884 per cent FGN due for payment in 2027.
The DMO allotted a total of N110 billion, which was the amount offered in its circular released ahead of the Auction. The 14.50 per cent FGN JUL 2021 was allotted at a rate of 13.3800 per cent, while the 16.2884 per cent FGN MAR 2027 was allotted at 13.4910 per cent. What that means is that the bonds were at higher rates than the previous auction held last year.
The debt office said it sold N45.12 billion of the 14.5 per cent July 2021 five year bond at 13.38 per cent and N64.88 billion of the 16.2884 per cent March 2027 10 year bond at 13.491 per cent, higher than 13.19 percent and 13.21 percent respectively it fetched at the last auction. The total subscription at the sale was N150 billion.
Traders said investors bought bonds at higher yields at the auction to hedge against a possible rate cut later in the year, as inflation continues to decline, fuelling speculation about the outlook for official interest rates.
The governor of the Central Bank of Nigeria, Godwin Emefiele, had on Wednesday, said that the monetary policy committee would begin to consider cutting benchmark interest rate which has remained at 14 per cent for over a year. This he said is dependent on inflation rate dropping to between lower double digit and higher single digit. Inflation figure for December 2017 was down to 15.37 per cent.
Investors bid as high as 14.50 percent for the notes. However, the government has been offering debt at lower yields to track declining inflation, which fell for the eleventh month in December to 15.37 percent.
It would be recalled that the DMO had released its Issuance Calendar for Q1, 2018 last week with the details of its Auctions for the quarter. The DMO had stated then that its Issuance Programme is structured to ensure that the funds required to finance the budget deficit would be fully provided in line with its mandate.