LAGOS, JUNE 22, 2017 – Federal government sold a five, 10- and 20-year debt at a flat rate of 16.19 percent at an auction on Wednesday to curtail borrowing costs as inflation declines, traders said on Thursday.
The Debt Management Office (DMO) raised a total of 99.26 billion naira ($315.11 million), less than the 140 billion naira it wanted to raise, as it did not want to pay more for the notes.
It sold 4.22 billion naira of the 2021 paper at 16.19 percent, compared with 16.30 percent last month and 30.25 billion naira of the 2027 paper at 16.19 percent against 16.29 percent in May, it said.
It also sold 64.79 billion naira of the 2037 paper at 16.19 percent, compared with 16.29 percent last month.
“Demand for the five-year bond dropped significantly because of lack of interest in the shorter end of the market, because most investors, especially the pension funds prefer to lock in on the longer tenor paper,” one fixed-income trader told Reuters.
He added that the 2037 maturing debt was viewed favourably in light of falling inflation in the West African country.
Nigeria’s annual inflation eased for the fourth straight month in May, falling to 16.25 percent from 17.24 percent in April, while analysts expect further declines in the consumer price index this month.
Traders said tight liquidity reduced the demand for debt at the auction as the central bank sustained its intervention in the foreign exchange market, draining naira cash from the banking system.
Nigeria expects a budget deficit of about 2.36 trillion naira this year as it tries to spend its way out of a recession, with more than half the deficit to be funded through local borrowing.