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The local debt capital market in Nigeria experienced heightened borrowing activities in 2023, primarily driven by steep interest costs on Eurobond borrowings due to continuous interest rate hikes by foreign central banks in developed economies.
The Nigerian government, responding to this scenario, achieved a significant milestone by raising over N7.5 trillion in the local debt capital market throughout 2023. This notable sum was generated through primary market activities conducted by the Debt Management Office (DMO) and the Central Bank of Nigeria (CBN).
Meristem Securities Limited reported that this substantial amount was crucial in financing the N10.33 trillion budget deficit for the year. The breakdown of the funds revealed that the government issued Treasury instruments totaling N7.51 trillion to investors in the local debt market. Treasury bills sales contributed N2.13 trillion, while FGN bonds accounted for N5.38 trillion.
Analysts pointed out that this marked the highest amount ever raised by the government in the domestic fixed-income market, triggering a surge in activity levels in both the primary and secondary markets throughout 2023.
The T-bills auctions conducted in 2023 witnessed total subscriptions of N20.85 trillion, a 4.87-fold increase from the N4.28 trillion recorded in 2022. FGN bond auction subscriptions also saw a notable 59.75% year-on-year increase, reaching N7.43 trillion in 2023.
The exceptional figures underscored the heightened participation and activity within the domestic fixed-income market during the review period, as highlighted by Meristem Securities. Notably, the increased activity was more pronounced in the second half of the year, influenced by various measures implemented by the monetary authority that directly impacted the market.
Market developments, including the adjustment of the asymmetric corridor, removal of the NGN2 billion cap on the Standing Deposit Facility (SDF), reintroduction of OMO bills, and periodic CRR debits, significantly influenced system liquidity levels in 2023.
These factors led to a rally in Treasury yields at both the primary and secondary markets, reaching levels last observed in 2019. The yield on 364-day notes peaked at 20.00% in November, narrowing the real return to -820 basis points compared to -1297 basis points at the start of 2023.
Consequently, the average T-bills yield closed higher at 8.18% at the end of 2023, up from 5.71% at the end of 2022, according to Meristem Securities. Analysts noted that the FGN bond market, especially in the second half of the year, predominantly exhibited bearish trends, with 19 out of 22 FGN bonds recording negative price returns in 2023.
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