A successful bond auction for the DMO

The DMO’s monthly auction of FGN bonds last week was a success on the basis of sales, total bid and marginal rates. It offered N150bn, shared equally between its existing five, seven and ten-year benchmarks. It secured a total bid of N234bn, the highest for ten months, and raised N149bn (US$480m) from sales. Further, the marginal rates were between 41bps and 68bps lower than at January’s auction. The DMO also maintained a conventional yield curve. As in recent months, the bid was concentrated on the ten-year instrument (Feb ’28).


  • The DMO has raised N634bn since June when the new budget was signed off. It is therefore well-placed to achieve the N790bn target for domestic financing within the 2018 budget. In 2018 (calendar year) it raised N762bn.

  • 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.
Sources: Debt Management Office (DMO); FBNQuest Capital Research

Sources: Debt Management Office (DMO); FBNQuest Capital Research
  • The market dynamics in Nigeria are such that there is rarely a challenge in attracting a reasonable bid at auction. The prevailing yields are a core factor. In addition, the deposit money banks feel more comfortable with positions in FGN paper than moving down the credit curve in lending to the real economy.; the PFAs are limited by investment alternatives; and the offshore community has a more positive take on Nigerian (and other frontiers/emerging market) debt now that the pace of the normalization of US monetary policy has slowed.
  • The DMO can do no more than hitting the funding targets it is set. Budgets tend to overshoot, however: so in 2017 the FGN deficit of N3.81trn was covered to the extent of N2.51trn by domestic and external borrowing through the DMO, leaving N1.30trn “unfunded”.

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