The DMO held its latest monthly auction of FGN bonds last week, offering N70bn between the same three instruments for the ninth month in succession. It attracted a total bid of N94bn and raised just N6bn (US$20m) from sales. The marginal rates were flattish on the previous month in a market where investors pushed for higher returns, in some cases above 16.00%, because the DMO rejected the vast majority of bids. In the past, when it has taken such a stand against uncomfortably high investor expectations, it has fallen into line at the following monthly auction.
- The DMO has raised N763bn (gross) from bond auctions this calendar year and N368bn since June, when the new budget was signed off. (Additionally, it has a refinancing requirement of about N300bn this budget year.) It is therefore well-placed in the context of the N790bn target for domestic financing within the 2018 budget.
- There are no sizeable FGN bond maturities in Q1. The DMO can also take comfort from the Eurobond issue, which has covered its external funding target of US$2.8bn equivalent for the current budget year in full.
- The FGN’s cost of borrowing remains well below what we understand is the assumed average rate in the same budget.
Sales and demand at FGN bond auctions (N bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
- The bid for the two shorter maturities was negligible, so we hope to see new issues in the Q1 2019 issuance calendar.
- The CBN accelerated its mopping up of liquidity in mid-month through OMOs so the higher bids last week were not a surprise. The macro climate has also deteriorated with the falling oil price and the presentation of the 2019 budget to the National Assembly with a US$60/b oil price threshold.