Interest in bonds improves as February auction records 92% bid-to-cover ratio

The Debt Management Office (DMO) issued N800 billion Federal Government bonds in February, attracting strong demand compared with the January N900 billion auction, with subscription standing at N739 billion.

Data from DMO showed that total subscriptions at the auction stood at N739 billion, representing an increase from the N715 billion recorded in the previous month.

The stronger participation lifted the bid-to-cover ratio to 0.92 times, compared with 0.79 times in January, reflecting sustained investor appetite for government securities.

Despite the strong demand, the DMO allotted N524.3 billion to investors.

Overall, the domestic bond market closed February on a bullish note, with average yields declining sharply by 570 basis points month-on-month to settle at 15.54 per cent.

The drop in yields reflected stronger investor confidence and sustained demand for Federal Government securities during the period.

Operators attributed the trend largely to heightened interest in longer-dated instruments, as investors moved to secure relatively attractive yields amid expectations of potential moderation in interest rates over the medium term.

The increased demand for the tenor-rich bonds supported price gains in the secondary market, consequently driving yields lower.

They also noted that improved participation from institutional investors, including pension funds and asset managers, contributed to the bullish momentum, reinforcing the shift toward longer-tenor securities as investors positioned their portfolios to benefit from favourable returns.

The 10-year bond due February 2034 attracted subscriptions of N972.9 billion at a marginal rate of 15.5 per cent.

Similarly, the nine-year bond due May 2033 recorded N879.69 billion in bids at a marginal rate of 15.74 per cent, while the seven-year bond maturing in June 2032 drew N188.14 billion at a marginal rate of 15.74 per cent.

The positive sentiment in the domestic bond market was also reflected in Nigeria’s Eurobond segment during the month. Stronger buying interest and improving sentiment toward emerging market debt supported the rally in Nigeria’s Eurobonds, pushing average yields lower by 1.27 percentage points to close at 6.98 per cent.

According to the operators, the decline in Eurobond yields reflects renewed investor confidence in Nigeria’s external debt outlook, driven by improved sentiment toward emerging market assets and sustained demand from international investors.

They noted that the stronger buying interest has helped moderate yields in the international market, even as domestic fixed-income markets continue to contend with relatively tight liquidity conditions and elevated local borrowing costs.

Managing Director of Crane Securities Limited, Mike Ezeh, said there was an increased surge in investor interest in debt instruments, citing both attractive returns and the security of invested capital as key drivers.

According to Ezeh, the deepening appetite reflected a broader shift in the financial market, where traditional money market instruments are losing their appeal due to frequent adjustments in interest rates by regulators.

“Investors are increasingly seeking instruments that not only offer competitive returns but also safeguard their principal. This trend is evident in the strong participation in bond markets and other fixed-income securities, which continue to provide predictable yields in an environment of rising market volatility,” he said. (Guardian)