Investor demand for Federal Government bonds remained strong in September as subscriptions reached N1.49 trillion against the N1 trillion offered by the Debt Management Office, while the yield on a reopened 2038 bond declined sharply from the previous auction.
The September auction covered two instruments, a new 16.79% FGN September 2036 bond and the reopened 15.45% FGN June 2038 bond with N400 billion and N600 billion offered, respectively.
According to the official auction result published by the Debt Management Office, investors submitted N546.90 billion for the 2036 bond and N947.83 billion for the 2038 instrument, taking combined subscriptions to N1.49473 trillion.
The level of demand meant investors sought almost 1.5 times the N1 trillion offered, underscoring continued appetite for Federal Government securities despite a decline in yields.
The DMO allotted N288.63 billion of the September 2036 bond to the market and N460.01 billion of the June 2038 instrument, bringing the competitive market allotment to N748.64 billion.
In addition, the DMO recorded non-competitive allotments of N600 billion and N250 billion, respectively. This distinction is important: the frequently reported N748.64 billion figure represents the amount allotted to the market and should not be confused with the separate N850 billion in non-competitive allotments disclosed in the auction result.
The most significant development was the continued decline in the government’s borrowing rate.
The new 10-year September 2036 bond cleared at a marginal rate of 16.79 percent, while the reopened June 2038 bond cleared at 16.85 percent.
For the 2038 instrument, the September rate represented a decline of 94 basis points from the 17.79 percent recorded at the August auction.
The comparison is particularly relevant because it involves the same 15.45% FGN June 2038 instrument. At the August auction, the DMO offered N750 billion of the bond and received subscriptions of N821.32 billion before allotting N631.02 billion to the market at a marginal rate of 17.79 percent.
By September, subscriptions for the same bond had increased to N947.83 billion, even though the amount offered was reduced to N600 billion, while its marginal rate fell to 16.85 percent.
The combination of stronger demand and a lower clearing rate indicates that investors were prepared to accept a lower return to secure the Federal Government security.
The September auction attracted 441 bids across the two instruments, comprising 198 bids for the 2036 bond and 243 for the 2038 bond. Of these, 204 bids were successful.
Investors submitted rates ranging from 15 percent to 20 percent for the 2036 bond and between 15 percent and 18 percent for the 2038 instrument.
The movement extends the downward repricing already visible in Nigeria’s fixed-income market.
At the August auction, the government offered three bonds worth a combined N1.1 trillion and received subscriptions totalling approximately N1.73 trillion. Marginal rates stood at 17.15 percent for the January 2035 bond, 17.19 percent for the April 2037 bond and 17.79 percent for the June 2038 instrument.
September’s results therefore provide clearer evidence that investors are increasingly willing to lock funds into longer-dated government securities at yields below the levels demanded only a month earlier.
The change comes as Nigeria’s inflation environment has also begun to improve. Headline inflation eased to 15.39 percent in August from 15.43 percent in July, while monthly inflation slowed more substantially to 0.71 percent from 1.57 percent.
With the June 2038 bond clearing at 16.85 percent, its nominal auction yield is now only moderately above the latest headline inflation rate.
The comparison does not establish future real returns, since those will depend on inflation over the life of the investment, but it illustrates how quickly government securities are being repriced.
For the Federal Government, sustained downward movement in auction rates could eventually reduce the marginal cost of new domestic borrowing, particularly if investor demand remains strong.
It could also have broader implications for Nigeria’s financial markets.
Federal Government securities serve as an important reference point for pricing other naira-denominated debt. A sustained decline in sovereign yields can influence the rates investors demand from banks and companies issuing commercial papers and corporate bonds, although private-sector borrowing costs also depend on credit risk, liquidity and monetary conditions.
The September auction therefore provides another signal that Nigeria’s fixed-income market is beginning to adjust to moderating inflation and changing expectations around interest rates.
However, one auction does not by itself establish a sustained downward trend. The direction of inflation, banking-system liquidity and future monetary policy decisions will remain important in determining whether investors continue accepting lower yields at subsequent government debt auctions.
For September, however, the numbers are clear: investors submitted N1.49 trillion for N1 trillion of bonds on offer, while the comparable June 2038 instrument repriced from 17.79 percent in August to 16.85 percent, reducing the Federal Government’s marginal borrowing rate on that security by 94 basis points.