Rates Rebound Amid Increased Supply of FGN Bonds
The Debt Management Office conducted its monthly auction of FGN Bonds on Monday (25th Aug ’25). It presented N200.00bn (compared to N80.00bn at the previous auction) through the new issuance of the 17.95% FGN AUG 2030 (5-year) and the reopening of the 17.95% FGN JUN 2032 (7-year) instruments. The total
subscription reached N268.17bn (as opposed to N300.67bn previously), leading to a bid-to-offer ratio of 1.34x (down from 3.76x previously). The DMO allocated
N136.17bn, indicating a bid-to-cover ratio of 1.97x (up from 1.62x previously). The bids were allocated at the marginal rates of 17.95% and 18.00% (increased from 15.90% previously) respectively.
The robust demand at the auction was bolstered by enhanced system liquidity (N739.10bn as of 26th Aug ‘25), driven by FAAC inflows and T-bill maturities. Domestic institutional investors continue to be the primary participants at the auction, especially Pension Fund Administrators (PFA)s. According to the National Pension Commission (PENCOM), FGN bonds held by PFAs as of June rose by 18.22% year-on-year to N14.5trn compared to N12.22trn in the same period of 2024. The PENCOM report indicates that FGN bonds constituted 58.66% of total assets under management (AUM) in Jun ’25.
Significantly, we noted a reversal in the downward pressure on yield, as the 7-year marginal rate increased by 210 bps to 18.00% per annum from 15.90% per annum at the last auction. This reflects the bearish sentiment in the secondary market, as the marginal rates were effectively aligned with the secondary yields. This may indicate a shift in market sentiment from a near certainty that the Monetary Policy Committee will begin to lower the Monetary Policy Rate in their September meeting to a genuine possibility that they will maintain rates at their current levels.
The bearish sentiments in the FGN bond secondary market have continued over the past month, with average yields increasing by 49 basis points to 16.70% per annum, up from 16.21% per annum. This bearish trend was widespread, as yields rose throughout the yield curve. The midpoint experienced the most significant increase, rising by 64 basis points to 16.74% per annum, while short and long-term yields grew by 46 basis points and 28 basis points, respectively, closing at 17.07% per annum and 15.88% per annum. The selloffs observed are indicative of investors’ reactions to the upward adjustment in the FGN Bond supply calendar, which suggests a rise in borrowing for future issuances.
Year-to-date, the FGN has successfully raised approximately N12.65 trillion through Treasury bills and FGN Bond issuances. At this rate, the Debt Management Office (DMO) is generally on course to achieve and possibly surpass its 2025 domestic borrowing target of N13.08 trillion, provided that supply continues along the current path.
In addition to the domestic market, there is a potential for a Eurobond issuance in the third quarter or the beginning of the fourth quarter of 2025, in accordance with the Medium-Term Debt Strategy, contingent upon external market conditions. We anticipate upward pressure on yields in the short term as liquidity conditions become tighter due to OMO issuances. SOURCE: Coronation Asset Management
