Weak Sentiment Weighs on FG’s Bonds

• Weak Sentiment Weighs on FG’s Bonds

The uncertainty surrounding the Nigerian economic outlook has started hurting Nigerian assets as investors shunned Federal Government’s bonds for August.

Investors undersubscribed for Federal Government Bonds for the first time in two years in August as recent events continued to dictate market sentiment.

Out of the N145 billion bonds issued by the Federal Government through the Debt Management Office (DMO), only N95 billion total subscriptions were recorded. The first under-subscription in two years.

“There was a very weak demand at the auction,” said Nnamdi Olisaeloka, a fixed-income analyst at Lagos-based Zedcrest Capital Ltd. “Yields on Nigerian Treasury Bills have become very elevated and that has dampened investor interest for bonds.”

DMO offered N40 billion at 14.29 percent for the five-year maturity, while N50 billion was auctioned for the 10-year bonds at 14.39 percent. The remaining N55 billion was offered for the 30-year bonds at a 14.590 percent yield.

Despite higher yield on offer, investors are still wary of various challenges confronting the Nigerian economy after P&ID judgment.

Also, weak oil price, Nigeria’s major source of foreign revenue, is another issue weighing on market sentiment as oil price plunged below Central Bank of Nigeria’s $60 a barrel benchmark for 2019 budget.

Therefore, with the U.S and China yet to reach an agreement, the possibility of high oil price remained uncertain in the near-term. Meaning, Central Bank of Nigeria’s ability to intervene in the foreign exchange market and stabilize the Naira remains in doubt.

The Naira dipped against the US dollar to N363.77 in the Investors & Exporter (I&E) window on Wednesday after President Muhammadu Buhari sworn-in and allocated portfolio to ministers.

“Total subscriptions received from both Competitive and Non-Competitive bids amounted to N139.58 billion,” the DMO said in a statement which accompanied the auction results. “The strong demand from investors for the FGN Bonds offered at the Auction was in spite of the prevailing tight liquidity experienced in the financial markets.”