A successful auction for the DMO

Last week the DMO held its latest monthly auction of FGN bonds. It has good reason to be satisfied with the outcome, not least because it is again running a programme of auctions without an approved FGN budget in place. It offered N130bn, attracted a total bid of N216bn and raised N160bn (US$520m). The office successfully launched a new 10-year benchmark, and was able to set a marginal rate for the two re-opened issues up to 50bps lower than at the previous month’s auction. The bid, while short of February’s record N337bn, provided adequate coverage.

The DMO has now raised N535bn (US$1.74bn) in just three months and has again front-loaded its issuance. The FGN’s 2017 budget proposals project a FGN deficit of N2.36trn and domestic borrowing of N1.25trn.


A successful auction for the DMO Sources: Debt Management Office (DMO); FBNQuest Research

This year the domestic target extends beyond the staple FGN bonds sold at monthly auction. The DMO is currently selling savings bonds to retail investors with two- and three-year maturities. Additionally, together with the SEC, it is working on the launch of the country’s first sukuk (Islamic bond). It therefore has a little more flexibility in meeting the FGN’s funding target.

The DMO should be able to count on the PFAs to bid at auction. The institutions’ wariness of equity exposure is well documented in the regulator’s monthly reports.

The FGN’s expansionary fiscal stance is adding to the mountain of domestic debt service, which last year reached N1.23trn. Its Economic Recovery and Growth Plan 2017-20 happily projects a marked shift in borrowing to predominantly external (and lower cost) from 2018.

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