Nigeria raises ₦606bn in bond auction

Nigeria recently held its first bond auction for the year 2025, which saw significant demand from local investors resulting in the government raising over 600 billion naira. Investors priced bonds at higher rates across the 5-year, 7-year, and 10-year maturities, showing a strong appetite for Nigerian bonds. Oluwamayowa Sanni, the Financial Institutions Sales Manager at Stanbic IBTC, provided insights into the government's borrowing appetite for the year. During the auction, the total amount on offer was around 450 billion naira, but the Debt Management Office (DMO) ended up selling a substantial 606 billion naira. The stop rates for the different bonds on offer were approximately 50 basis points above the last stop rate of the 5-year and the 7-year bonds. The 2029 bond closed around 21.79, the 2031 bond closed around 22.50, and the new 10-year bond closed at 22.60. One significant aspect was the participation of offshore investors, indicating increased confidence in the market. Unlike previous auctions where offshore investors submitted test bids, this time they showed genuine interest, reflecting positive sentiments towards Nigerian securities. Offshore investor participation in the bond auction is crucial for the FX market, as it influences currency stability and appreciation. In 2021, offshore investors accounted for about 30% of the market and brought in $9.6 billion. Year to date, they have already injected close to $800 million into the market, playing a vital role in supporting the local currency. Their recent injections have led to the appreciation of the Naira from 1540 levels to 1520-1530 levels, showcasing the positive impact of offshore participation. The strong demand at the bond auction bodes well for the government's borrowing plans, especially considering their target of raising 7.6 trillion naira from the domestic market. With such robust appetite demonstrated at the first auction, it indicates that the government can raise the necessary funds without significantly increasing borrowing costs. This favorable market response in the first quarter sets a positive tone for upcoming auctions, aligning with expectations of sizeable maturities from NTB auctions and bond coupons in the following months. However, the elevated rates resulting from strong demand may pose challenges for the corporate bond market. Corporates looking to borrow may find it more expensive and difficult due to investors' preferences for higher returns on their investments. The prevailing market dynamics could potentially limit corporate bond issuances and lead to a preference for Commercial Papers (CPs) instead. In terms of the FX market, the Naira has been relatively stable around 1500 levels since late last year, with intermittent interventions from the Central Bank of Nigeria (CBN). The CBN has been a significant supplier in the market, selling about 550 million year to date. Additionally, offshore investors have sold more than the CBN, injecting around 800 million into the market, contributing to currency stabilization and slight appreciation. Recent offshore sales have pushed the Naira to approximately 1530-1540 levels, highlighting the impact of foreign investor activity in the FX market. Overall, Nigeria's successful bond auction, coupled with increased offshore investor participation, signals confidence in the market and provides a positive outlook for the government's borrowing activities and currency stability.