The Central Bank of Nigeria’s (CBN) tight monetary policy has increased investor demand for higher returns, posing a new danger to the Federal Government’s aim to borrow roughly N720 billion through FGN bond auctions in the third quarter, Q3’22.
Remember how the CBN implemented a strict monetary policy regime in May 2022 in response to the inflation rate rising to 18.6% in June after five consecutive months? The Monetary Policy Rate, or MPR, was raised by 150 basis points to 13% in May and then by 100 basis points to 14% in July.
Investors’ need for greater returns across all instruments and market groups was heightened by this trend, which also successfully prompted increases in money market yields.
As a result of the July auction recording 37% under subscription, the Debt Management Office, DMO, was unable to meet its sales goal, marking the first under-subscription in this year’s FGN bond auction.
The Debt Management Office, DMO, has issued the FGN bond auction schedule for Q3’22, which indicates that the FG intends to raise between N630 billion and N720 billion within the quarter.
According to the calendar, the FG hopes to raise between N210 billion and N240 billion through subscription in three tranches of 10-year, 10-year, and 20-year original tenor, respectively, through the DMO in each of the three months of the quarter.
However, out of the N142 billion in total subscriptions, 37% of the N225 billion FGN bond that the DMO offered at the July auction was undersubscribed.
