DMO allots N1.56trn as FGN bond demand hits N1.73trn

The Debt Management Office (DMO) allotted N1.56 trillion in Federal Government bonds on Monday, significantly above the N1.10 trillion offered, after investors submitted bids worth N1.73 trillion, while borrowing rates fell by more than 100 basis points from the previous auction.

The strong demand and lower clearing yields point to sustained investor appetite for longer-dated government securities even as the cost of domestic borrowing begins to ease.

The August 17 auction covered three reopened bonds: the 22.60 per cent FGN January 2035, 16.2499 per cent FGN April 2037 and 15.45 per cent FGN June 2038 instruments.

Investors submitted 595 bids valued at N1.73 trillion, with 226 successful bids.

The 15-year June 2038 bond attracted the strongest demand, receiving 225 bids worth N821.32 billion. The DMO allotted N631.02 billion through the competitive window and another N742.29 billion through the non-competitive window, taking total allotment on the instrument to more than N1.37 trillion.

Its marginal rate settled at 17.79 per cent, compared with 17.15 per cent for the 2035 bond and 17.19 per cent for the 2037 instrument.

The 2035 bond attracted N513.61 billion in bids from 199 investors, with N64.13 billion allotted competitively and another N10 billion through the non-competitive window.

The 2037 bond attracted N392.48 billion in bids from 171 investors, while N110.01 billion was allotted at a marginal rate of 17.19 per cent.

The lower clearing rates represent a significant shift from the previous auction on July 20, when the same three instruments cleared at 18.34 per cent, 18.35 per cent and 18.40 per cent, respectively.

The August auction therefore recorded rate reductions of about 119 basis points on the 2035 bond, 116 basis points on the 2037 paper and 61 basis points on the 2038 instrument.

At the same time, total allotment jumped from N929.32 billion in July to N1.56 trillion in August, even though the amount initially offered was reduced from N1.20 trillion to N1.10 trillion.

The unusually high allotment was driven largely by the non-competitive window, particularly the June 2038 bond, which absorbed a substantial amount of investor demand outside the competitive bidding process.

The outcome suggests that investors remain willing to commit significant funds to long-term sovereign debt despite the decline in yields, potentially reflecting expectations of further moderation in interest rates.

The development is important for the government’s borrowing programme as lower yields, if sustained, could gradually reduce the cost of raising domestic debt.

However, the large allotment also underscores the Federal Government’s continued reliance on the domestic fixed-income market to finance fiscal obligations.

The August auction forms part of the DMO’s third-quarter 2026 bond programme, under which the same three bonds are being reopened across July, August and September.

FGN bonds are long-term government securities used to finance budget deficits and public expenditure, with investors receiving coupon payments before principal repayment at maturity.