The Debt Management Office (DMO) will on March 18 2024 auction N450 billion worth of bonds with the settlement date slated for March 20, 2024. The bonds comprise a new 3-year N150 billion FGN March 2027.
The second bond is the N150 billion FGN Feb 2031 with a coupon rate of 18.50 percent due 2031. It is a 7-year reopening bond. The third is the N150 billion FGN Feb 2034 ten-year reopening bond having a coupon rate of 19 percent.
According to the offer document, the minimum subscription is N50,001,000 and in multiples of N1,000 thereafter.
“For Re-openings of previously issued bonds, (where the coupon is already set), successful bidders will pay a price corresponding to the yield-to-maturity bid that clears the volume being auctioned, plus any accrued interest on the instrument,” DMO stated.
Appraising the offer in respect of the previous bond auctions, Meristem Securities said it anticipated rising trend in rates across all the instruments.
“At the last Primary Market Auction (PMA) held in February 2024, the DMO introduced two new instruments – FEB 31, and FEB 34, offering a total of NGN2.50trn (NGN1.25trn on each instrument). Due to the higher offer amount, the PMA saw higher investor participation as subscription more than tripled, printing at NGN1.90trn (vs NGN604.56bn at the previous auction in January).
“Also, the amount allotted was significantly higher as it rose to NGN1.49trn (vs NGN418.20bn in January). However, the bid-to-cover ratio fell to 1.27x from 1.45x in January, reflecting a higher allotment amount compared to the last auction. Consequently, the marginal rates on Feb-31 and Feb-34 printed at 18.50% and 19.00% respectively.
“In the upcoming auction, we anticipate an uptrend in rates across the offered instruments. We expect the recent upward adjustment (400bps) in the Monetary Policy Rate (MPR) by the Central Bank further to spur investors’ demand for higher rate at the auction,” Meristem Securities said.
In terms of valuation and bid rates, the securities outfit estimated FGN Feb 2031 at a fair value of N99.94 with an implied yield of 18.50 percent and advised bid rates between 18.50 percent and 19.50 percent.
The fair value of FGN Feb 2034 is put at N99.59 and an implied yield of 19.08 percent and advised bid rates between 19 percent and 21 percent.
Also, while not stating the fair value and implied yield for FGN March 2027, the advised bid rates for it are put at between 17.50 percent and 19 percent.
A bond is a fixed-income debt instrument issued by the government (federal or state government) or corporate institutions with a definite date of maturity and a fixed interest payment (known as a coupon) payable either semi-annually or annually. Unlike equities, bonds are issued with a guarantee of the initial investment and can have tenors as long as 20 years. A treasury note refers to a government bond instrument with a term to maturity of 1 to 10 years while a treasury bond has a maturity of 10 years and above.
