The Debt Management Office (DMO) has reported that the November 2023 FGN bonds attracted bids worth N330 billion, far exceeding the N90 billion offered, showing an oversubscription rate of over 300 percent.
This enthusiastic response towards the 30-year bonds starkly contrasts with the tepid interest in shorter tenor notes.
Bonds maturing in 2029, 2033, and 2038 garnered significantly less investor interest at the same auction, with the 2029 bonds raising only N34.7 billion against a target of N90 billion, and the 2033 and 2038 bonds attracting N33 billion and N47 billion, respectively, both falling short of their N90 billion goals.
Analysts explained that the preference for longer-term bonds stems from their yields being perceived as higher than the long-term inflation projections, which are estimated to be between 12-13 percent.
According to them, this rationale highlights a strategic shift among investors, who are opting for securities that promise returns exceeding the anticipated inflation rates over an extended period.
The high demand for the 30-year bonds, offering a coupon rate of 15.70 percent, resulted in 206 successful bids from a total of 211, with interest rates ranging from 15.70 percent to 20.0 percent, leading to a record yield of 18 percent.
This robust performance, however, unfolds against a backdrop of escalating inflation concerns in Nigeria, which according to the National Bureau of Statistics rose to 27.33 percent in October.
The divergence in the bond market responses underscores the complex economic landscape in Nigeria. While the strong uptake of the 30-year bonds indicates confidence in the country’s long-term economic prospects, the underperformance of the shorter-tenor bonds and the high inflation rate paint a more nuanced picture of investor sentiment and economic stability.
For investors, these market dynamics signal the importance of a strategic approach, balancing the allure of high yields against Nigeria’s macroeconomic conditions. The upcoming inflation data will be key in shaping future market trends and investment decisions.