The Federal Government of Nigeria is set to raise N360 billion in new borrowings through a bond auction to address budget deficit and bolster national revenue. This auction marks the second in a series of debt issuances scheduled for the quarter.
The Debt Management Office (DMO), responsible for overseeing the government’s debt issuance and management, will offer four bonds across different tenors, aiming to raise N90 billion on each tenor, resulting in a total of N360 billion.
Market analysts predict strong demand for the bonds based on recent subscription trends, anticipating that the government may allocate more than the initial targets due to oversubscription. The bonds up for offer are reopening of previous issuances and consist of four options: 10-year, 14.55% April 2029 bond; 10-year, 14.70% June 2033 bond; 15-year, 15.45% June 2038 bond; and 30-year, 15.70% June 2053 bond. These are the same bonds offered in the previous month’s auction.
During the previous month’s bond auction, the government exceeded its initial N360 billion target, raising N657.84 billion due to a remarkable 163% oversubscription. The DMO allotted different amounts of bonds for each tenor with corresponding marginal rates. The outcome of the auction is expected to impact sentiments in the secondary debt market.
Analysts at Cordros Capital predict that sovereign bond yields will likely remain elevated in the medium term due to supply-demand dynamics. They also note that efforts by the DMO to maintain moderate borrowing costs could serve as a mitigating factor.
Opinion:
The decision to raise funds through bond issuance showcases the government’s strategy to manage budget deficits and finance critical projects. While bond auctions can attract significant interest due to attractive yields, there’s a need for prudent financial management to ensure that the borrowing does not lead to unsustainable debt levels.