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FG to conduct bond auction today

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The Federal Government, facilitated by the Debt Management Office, is set to conduct a bond auction today, offering N360 billion across four issues.

The offerings comprise four re-opening issues: N90 billion 16.29 percent FGN March 2027; N90 billion 14.55 percent FGN April 2029; N90 billion 14.70 percent FGN June 2033; and N90 billion 15.45 percent FGN June 2038.

Market dealers noted an uptick in demand during the last Primary Market Auction held in December 2023, with total subscriptions reaching N886.41 billion, compared to N445.29 billion in November. 

The surge in demand was primarily fueled by robust system liquidity. However, the allotted amount decreased by 37.02 percent month-on-month to N273.63 billion, down from N434.49 billion in the previous auction.

“The bid-to-cover ratio more than tripled to 3.24x, signaling increased investor participation. Consequently, marginal rates on the Apr-29, Jun-33, Jun-38, and Jun-53 fell by 50 basis points (bps), 100 bps, 100 bps, and 85 bps respectively,” observed market analysts.

Market dealers anticipate rates to remain steady in today’s auction, supported by the monetary authority’s commitment to maintaining attractive rates on treasury instruments. 

Moreover, the government’s efforts to manage borrowing costs suggest a likelihood of rates remaining within the range observed in the last auction.

However, analysts from Proshare Research cautioned that the rate increase at the last Treasury Bills PMA might prompt investors to seek higher rates at the auction, given persistently high inflation rates leading to a negative real rate of return on treasury instruments.

“In the secondary market, sentiment has predominantly favored bullishness, driving the average bond yield down to 13.59 percent as of January 25, 2024, from 14.86 percent during the last auction date. Nevertheless, analysts foresee a potential reversal of this trend as investors continue to pursue higher rates across the yield curve,” the analysts stated.

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