FG Slashes Domestic Bond Size as Yields Rise

• FG Slashes Domestic Bond Size as Yields Rise

The Debt Management Office sold far fewer bonds than it offered on Wednesday as investors, worried about rising inflation, demanded higher yields from a government looking to spend its way out of recession.

The debt office raised N69.2bn ($227m) in bonds maturing in five, 10 and 20 years’ time, less than the N95bn it had wanted.

Investors were demanding yields of up to 18 per cent for the notes, far above the mid-point at which the DMO wanted to issue them, to compensate for inflation which hit more than 11-year high of 18.5 per cent on Thursday.

“Many investors are not willing to lock up their funds at present levels,” one trader told Reuters.

Investors, worried about rising inflation with oil receipts and foreign inflows declining, are pushing up Nigerian bond yields, which could increase the cost of servicing local debt for the government, according to analysts.

The DMO paid 16.43 per cent to auction N41bn, maturing in 2036 debt and fetched N25bn due in 2026 debt at 16.24 per cent. It issued N3.2bn of 2021 debt at 15.99 per cent.

It paid around 15 per cent for these notes at its previous auction last month.

On Tuesday, the government found unrecorded debts of N2.2tn left over from the previous administration, which turned up after an audit aimed at improving transparency.

The government expects the 2017 deficit to widen to N2.36tn as it tries to drag the economy out of recession with a budget that foresees record spending. More than half of the deficit will be funded through domestic borrowing.

Total subscription at Wednesday’s auction stood at N102.84bn. Traders said the quest for higher yields masked the levels of liquidity in the banking system.