Unpacking outcome of ₦2.5trn bond auction

The recent February 2024 bond auction in Nigeria, totaling 2.5 trillion naira, has garnered attention and raised questions about the country's borrowing plan and market absorption capacity. The auction, which included the issuance of 7-year 2031 and 10-year 2034 papers, saw subscription levels at 1.08 billion naira and 820.7 billion naira, with stop rates at 18.5 and 19 percent respectively. To provide insights into this significant event and discuss sentiments ahead of the upcoming T-bills auction, Wonuola Akanbi, the Head of Energy and Infrastructure sales at Global Markets Stanbic IBTC, shared her perspectives during a CNBC Africa interview. Akanbi highlighted the unprecedented nature of the recent auction, emphasizing the government's need to borrow substantial amounts to fund budget deficits, roll over maturing bonds and bills, and transfer unsecuritized portions from the central bank's balance sheet to the market. The increased borrowing targets, estimated to reach 21 trillion naira, have led to large offers in the debt market. Despite offering 2.5 trillion naira at the auction, only 1.9 trillion was subscribed, resulting in the sale of 1.5 trillion at 18.5 and 19 percent rates. Akanbi also discussed the implications of these rates, indicating that while wider than current secondary market rates, they provide fair value given the government's needs. However, she noted that sustained high issuance levels around 1.5 trillion naira per month might be necessary to meet budget targets, raising concerns about market absorption capacity. Foreign portfolio investor participation in the bond auction was limited, with many preferring shorter-term T-bills due to risk management considerations. Looking ahead to the T-bills auction, Akanbi anticipated investor demand for higher yields, especially considering recent inflows and the importance of stabilizing the economy and reducing inflation. The interview further delved into the differences in perspective between foreign and local investors regarding returns and risk premiums. Foreign investors prioritize currency stability and dollar returns, making higher domestic yields attractive despite lower rates than local inflation. Akanbi underscored the importance of policy measures to ensure exchange rate stability and attract foreign investment. The discussion concluded with considerations about the effectiveness of the CBN's short-term strategy to boost inflows through T-bill issuances, with Akanbi emphasizing the need for sustained efforts to maintain investor interest and support the economy.