Nigeria Raises N4.2 Trillion from Local Debt Market to Support Budget Deficit

Nigeria’s Debt Management Office (DMO) has successfully raised N4.2 trillion through bond auction sales in the past seven months to support the government’s efforts in financing the 2023 budget deficit. Despite inflation pressure, the DMO has maintained lower funding costs by keeping spot rate pricing depressed and continuing to frontload borrowings.

During the July bond auction, the DMO surpassed its borrowing target once again, taking advantage of significant subscriptions for government bonds and raising N657 billion, 82.5% above its intended amount. The average rates for these bonds were 13.63%, lower than the 14.94% recorded in June.

However, the negative interest yield on bonds has deterred foreign investors, despite a persistent shortage of US dollars in the Nigerian economy. To accommodate local investors, Nigeria has managed to keep borrowing costs on local bonds lower, even though interest and inflation rates have increased.

In the just-concluded week, the values of FGN bonds traded in the secondary market experienced some moderation as yields increased for most maturities tracked. Rising inflation rates remain a concern for local bond investors.

The average yield expanded by 18 basis points to 13.3%, with all segments of the benchmark curve witnessing an increase in average yield. Profit-taking activities on certain bonds led to a surge in yields.

While the market saw some gains on the first two trading days, it eventually closed negative due to depressed liquidity in the financial system. Short and long-term bonds were more affected by sell-offs, particularly in the longer end of the curve.

Similarly, FGN Eurobonds also traded lower across all maturities, reflecting sustained negative sentiment. Yields for the 10-year, 20-year, and 30-year Eurobonds expanded as they recorded losses.

Cordros Capital analysts expect yields in the FGN bond secondary market to remain elevated in the medium term, driven by an imbalance in the demand and supply dynamics. However, they also acknowledge that deliberate actions by the Debt Management Office to moderate the cost of borrowing could offset some downsides.