Investors will be hoping to get higher interest rates when Nigeria attempts to sell N2.5 trillion worth of seven and 10-year naira-denominated bonds today.
That’s the highest amount the government has attempted to raise in local bonds in one month and is seven times more than the N360 billion offered in January.
The bond auction, which will be held on February 19, includes N1.25 trillion a piece in seven and 10-year bonds.
According to experts, the offer of N2.5 trillion suggests a heightened need for the government to raise funds from the local debt market, which could prompt investors to demand higher yields as seen at the last Treasury Bill auction this month when a one-year paper yielded a return of 23.43 percent.
Analysts say the government may be trying to front-load its borrowing in the expectation of higher interest rates in the future.
At the last bond auction on January 29, the interest rates for these maturities were recorded at 16.2 percent for the March 2027 10-year re-opening, and 14.55 percent for the April 2029 10-year re-opening.
The June 2033 10-year re-opening recorded a return of 14.70 percent and 15.45 percent for the June 2038 15-year re-opening.
Kelvin Emmanuel, an economist said that the federal government can no longer depend on the Central Bank of Nigeria (CBN) to print money and the government may be turning more to raising cash through bonds.
“There are however some disadvantages in raising more debt when the deficit financing in your budget is 48 percent and you are using 94.8 percent of your capex to service and refinance existing debt,” Emmanuel said.
“But at least it’s better than using central bank overdrafts to fund budget deficits,” he said.
There are expectations that central banks of global economies are likely to cut rates this year as inflation begins to cool.
In Nigeria, however, inflation is accelerating, piling pressure on the CBN to hike rates at a meeting later this month.
Inflation soared 29.9 percent in January 2024, according to data from the National Bureau of Statistics, with food inflation hitting 35.41 percent.
The current benchmark interest rate stands at 18.5 percent with analysts expecting a 300 basis points hike by the CBN when the Monetary Policy Committee meets on February 26 and 27.
“The feeling for every investor is that the government is trying to front-load its borrowings,” Sesan Adeyeye, a portfolio manager, said.
“With the turnout of the NT-bills auction, investors are likely to want higher interest rates however system liquidity matters since the CBN has stopped the CRR debit, in the meantime, we see a bit of system liquidity in the market but we still expect rates to be higher,” Adeyeye said.
