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FGN Bonds record first undersubscription in 2 years

FGN Bonds record first undersubscription in 2 years

Investors seem to have lost the appetite for government securities, as the August FGN Bonds auction, conducted on Wednesday, August 21, 2019, recorded its first undersubscription in 2 years. 

According to the Debt Management Office (DMO), the FGN bonds were undersubscribed by N49.91 billion.  

Breakdown: The auctioned bonds include –N40 billion five-year re-opening bond expected to mature in April 2023 and be offered at 12.75%; N50 billion 10-year reopening bond expected to mature in April 2029 and be auctioned at 14.55%; and N55 billion 30-year bond expected to mature in April 2049 and be auctioned at 14.8%. 

READ MORE: Three months on, investors continue to oversubscribe FGN Bonds

Total subscription: The debt office on behalf of the Federal Government, received N95.09 billion, comprising N10.41 billion for 12.75% FGN April 2023 bond; N37.47 billion for 14.55% FGN April 2029 bond; and N47.21 billion for 14.80% FGN April 2049 bond. 

The DMO, however, indicated that the demand from investors for the FGN bonds offered at the auction was despite the prevailing tight liquidity experienced in the financial markets. 

“Allotments were made to successful bidders at the rate of 14.290% for the five-year, 14.390% for the 10-year and 14.590% for the 30-year bond,” the DMO stated. 

Understanding Bonds: A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. A bond has an end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments that will be made by the borrower. 

READ ALSO: FG’s domestic debt servicing cost hit N1.7tn in 2018

Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.

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The FGN Bonds that were offered to investors for the month of March was oversubscribed by N140 billion, according to the Debt Management Office (DMO).

The DMO disclosed that though the initial offer was N100 billion bonds, the total subscription received was N240.6bn.

Oversubscription in previous months: DMO had also recorded over-subscription of the FGN bonds in January and February 2019. According to information contained on the agency’s website, the initial value of the January bond was N150 billion, even though investors over-subscribed by N197 billion.

While in February, FGN bonds for the month was worth N150bn, but the total bids received from investors for the bonds was N234bn.

In March, another over-subscription has been recorded, indicating an increasing interest in the Federal Government’s bonds. Nairametrics recently reported about a lady on Twitter who narrated how subscribing to the Federal Government of Nigeria Bond helps her to save enough money for her house rent each year.

According to report, at the auction, DMO offered three instruments at the auction for three, seven, and ten years, and subscriptions for the three instruments was in excess of N148bn for competitive bids, while offers for Non-competitive bids were valued at N92.6bn.

“The FGN Bond auction for March 2019 conducted on Wednesday at which N100bn bonds were offered was oversubscribed just as in the auctions for January and February.

“We offered three instruments at the auction for three, seven and 10-year tenors and subscriptions for the three instruments was in excess of N148bn for competitive bids. Non-competitive bids valued at N92.6bn were also received, taking the total subscriptions across the three tenors to over N240.6bn.

“The trend of investors’ preference for the longer tenured instrument continued, with the 10-year bond significantly oversubscribed with a bid-to-cover ratio above five.

“Allotments were made to successful bidders at the rates of 13.5 per cent for the five-year, 13.5 per cent for the seven-year and 13.5 per cent for the 10-year bonds, which are considerably lower than the allotment rates for the February 2019 auction.”

It was revealed that the total amount allotted to both competitive and non-competitive bids for the three instruments was N121.95bn.

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