The Debt Management Office (DMO) yesterday opened subscription for the August 2019 Federal Government Saving Bond, issuing the two and three year bond at the second lowest rate since it began offering the bond in 2017.
The offer circular released by the debt office yesterday showed a decline in the yields on both the two and 3-year papers when compared to what it had been offering since the beginning of the year. The 2-year paper is being raised at 10.301 per cent, while the 3-year paper is being raised at 11.301 per cent.
With inflation currently at 11.22 per cent, yield on the 2-year paper is lower than inflation while the yield on the 3-year paper was slightly higher than the rate at which the prices of goods and services rose. Inflation which had dropped to 11.25 in March this year had begun trending upwards, rising to 11.4 per cent in May before declining to 11.22 per cent in June.
Since the inception of the Savings Bond which debuted in March 2017, the lowest rate had been in May last year when the DMO issued the 2-year paper at 9.48 per cent and the 3-year paper at 10.48 per cent.
DMO had issued the highest yield on the Savings Bond, meant to attract retail in September 2017, the year the bond started issuing the 2-year paper at 13.817 per cent and the 3-year paper at 14.817 per cent.
Yield on the Savings Bond has been declining from 21.125 per cent and 13.125 per cent which the 2- and 3-year bonds was sold at the beginning of the year. From the beginning of the year, the debt office had been able to raise N3.025 billion from the saving bond with the lowest monthly amount raised in March 2019 when N240.88 million had been raised.
Meanwhile, maturing Open Market Operation (OMO) instruments worth N108.9 billion is expected to boost liquidity in the money market. Last week, the Treasury Bills secondary market closed on a bearish note largely due to tightened system liquidity, as average yield across all tenors stood on 14 basis points week on week to settle at 11.2 per cent from 11.1 per cent in the previous week. Sell–offs were largely witnessed on the short and medium term bills causing yields to rise by 19bps and 11bps W-o-W respectively, while the long term bills dipped 4bps W-o-W.
Analysts at Afrinvest West Africa Limited said with the absence of OMO offers by the Central Bank of Nigeria (CBN), it was expected that there would be more demand in the secondary market consequently leading to pressured yields across the curve.
The CBN had last week rolled over maturing bills worth N223.2 billion across the 91-Day, 182-Day and 364-Day, closing at respective stop rates of 9.75, 10.6 and 11.18 per cents respectively. The stop-rate on the 364-day instrument increased by 5bps to 11.18 per cent despite recording the most subscription.
Also, there was no OMO auction by the Apex bank despite an estimated OMO maturity of N88.7billion, FAAC allocation of N360 billion and bond coupon payment of N46 billion during the week.