Another auction in line with the script

At this week’s monthly auction of FGN bonds, the DMO offered N90bn, attracted a total bid of N263bn and raised N90bn (US$290m) from sales. It is in a far better place at auction than last year. It has a positive story for fixed income investors, being the official debt strategy of “externalization”. Although we are still mired in the 2018 budget impasse, it would appear that its funding target will be reduced from 2017. Finally, it is issuing additional debt instruments (sukuk, and green and savings bonds), and is a little less dependent upon these monthly auctions.

  • Because the DMO could be selective in its acceptance of bids, it saw a further compression in the marginal rates: 68bps and 71bps than the previous month for the Mar ‘25s and Feb ‘28s respectively.
  • Debt servicing costs have fallen more rapidly for the 364-day NTBs, for which the yield at primary auction has declined by 295bps since the start of the year and by 903bps over nine months. This reflects the return of the offshore portfolio investoren masse to the market, and has been driven by the stated intention of the FGN to deploy some of the Eurobond proceeds to paying down longer tenor NTBs.
  • We estimate the FGN’s average cost of domestic borrowing, as distinct from the average interest rate, at 12.3% in 2017 (Good Morning Nigeria, 26 March 2018), and expect a decline this year on the same basis. The FGN should therefore see some good “savings” on the projected total debt service bill for 2018, which we understand to be N2.03trn excluding sinking fund contributions.

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


  • Although the DMO launched a new five-year benchmark this week, the bid was highest for the Feb ‘28s, at N160bn of the total of N263bn.

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