The DMO held its latest monthly auction of FGN bonds last week and offered N150bn, shared equally between its existing five, seven and ten-year benchmarks. It secured a total bid of N197bn, the highest for nine months, and raised N117bn (US$380m) from sales. Having rejected the vast majority of bids at the previous auction and raised just N6bn from sales, the DMO saw a doubling of the bid and particularly high demand for the Feb ‘28s. The marginal rates were even a little lower than in December, and the DMO has maintained a conventional yield curve.
- The DMO has raised N485bn since June, when the new budget was signed off. It is therefore reasonably placed in the context of the N790bn target for domestic financing within the 2018 budget:
- There are no sizeable FGN bond maturities in Q1 2019. The DMO can also be pleased with the successful Eurobond issue in November, which has covered its external funding target for the current budget year in full.
- The FGN’s cost of borrowing remains below what we understand is the assumed average rate in that budget. We do not know the assumptions for the 2019 budget proposals, submitted in December to the National Assembly.
Sales and demand at FGN bond auctions (N bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
- For Nigeria the relevant question is not whether it can attract the bid for FGN paper, rather it is the cost it has to pay. Two of the three main buying groups (the PFAs and the banks) have enduring reasons to bid at the auctions: the third (the offshore community) has been exiting the market in recent months for external reasons (principally the normalization of US monetary policy).
- On balance, the DMO can therefore take comfort from these latest auction results.
