Tight Monetary Policy Threatens FG’s N720bn  Borrowing 

The Federal Government’s plan to borrow about N720 billion through FGN bond auctions in the third quarter, Q3’22, has come under fresh threat following  increasing investors’ appetite for higher yields triggered by the adoption of  tight monetary policy of the Central Bank of Nigeria (CBN).
The CBN had in response to the five consecutive months rise in inflation rate to 18.6 per cent in June, launched a tight monetary policy regime in May, 2022.
This had raised the Monetary Policy Rate (MPR)   first by 150 basis points to 13 per cent in May and again by 100 basis points to 14 per cent in July.
The development effectively spurred increases in money market yields while intensifying investors’ appetite for higher returns across all instruments in all segments of the market.
Subsequently, the first under-subscription was recorded in  FGN bond auction this year, as the auction held in July recorded 37 per cent under subscription and as a result, Debt Management Office (DMO) could not achieve its sales target.
According to the FGN bond auction calendar for Q3’22 released by the DMO, the FG plans to raise between N630 billion and N720 billion during the quarter.
The calendar shows that  the FG, through the DMO, seeks  to raise between N210 billion and N240 billion in each of the three months in the quarter, through subscription in three tranches of 10-year, 10-year, and 20-year original tenor respectively.
But the N225 billion FGN bond offered by the DMO at the July auction recorded 37 per cent under subscription as total subscription stood at N142 billion.
This was in spite of slight increases in the interest rates on the bonds offered by the DMO.
The auction results showed that the DMO raised the marginal rates for the 3-year, 10-year and 20-year bonds  to 11.0 per cent from 10 per cent, 13.0 per cent from  12.5 per cent and 13.7 per cent from  13.2 per cent  respectively in the June auction.