The DMO has released its provisional issuance calendar for Q3 2017. It seeks to raise between N360bn (US$1.18bn) and N450bn (US$1.47bn) from the sale of FGN bonds. Provisional issuance is flat over the three months, and all bonds at auction are to be reopenings of existing issues. The DMO has a little flexibility on its side since it has already raised N850bn (gross) from auctions in H1 and the 2017 budget projects total net domestic financing of N1.25trn. In June it raised less than its offer and was able to set marginal rates below the level of the previous month.
This flexibility has its limits, being contingent upon the ability to meet the target for net external financing of N1.08trn (US$3.5bn at the assumed exchange rate of N305 per dollar).
Eurobonds and diaspora bonds have raised US$1.8bn ytd. However, talks with the World Bank on deficit financing are proceeding at best slowly although the African Development Bank may decide to disburse the US$400m balance of its budget support. The distinct possibility exists, therefore, that the FGN will return to the Eurobond market later in the year and take advantage of the global appetite for sovereign paper from emerging/frontier markets.
Of the three reopened issues, institutional demand is comfortably the softest for the five-year benchmark, which will have just three years and ten months to maturity in June. In contrast, the long bond (Apr ’37) is a natural fit for the PFAs, which are looking to match their long-term liabilities (to pensioners) to their assets.
The DMO has other strings to its bow than the staple FGN bonds. One is the FGN savings bond for retail investors, which raised only N2bn in Q1 2017. Another is the proposed N100bn sukuk (Islamic bond).