DMO calendar without an approved budget

The DMO has released its provisional issuance calendar for Q1 2017. It seeks to raise between N340bn (US$1.11bn) and N430bn (US$1.41bn) from the sale of FGN bonds, with provisional issuance peaking in February. Although the range is substantially higher than the programme of N250bn to N340bn in Q4, the DMO is following best practice in its aim of front-loading issuance at the start of the year. Its challenge is less whether it can meet its target than the price the federal finance ministry will pay. The calendar also launches a new 10-year benchmark in March.
The total bid has fallen off markedly since mid-2016 but should be adequate for the DMO’s purposes in the quarter ahead. The DMO will have sounded out its core investors (the PFAs) before releasing the calendar.

The PFAs held FGN bonds to the value of N3.50trn at end-September, equivalent to 58.7% of their AUM and 46.9% of the stock of FGN bonds as at end-June.

Domestic investors may feel that the returns on FGN bonds are low relative to those on longer tenor NTBs of well over 20%.

They may also feel that they should be better rewarded for covering the FGN’s 2017 deficit, which is projected in the proposals submitted to the National Assembly at N2.36trn. Domestic borrowing is forecast at N1.25trn, and the FGN bond market will again shoulder the lion’s share of the burden.


DMO calendar without an approved budget Sources: CBN; FBNQuest Research

The 2017 budget proposals also set total debt service at N1.66trn, including a sinking fund of N177bn to redeem maturing bonds. This represents an alarming 33.6% of projected aggregate FGN revenues, so we hope that, unlike in the past year, the revenue collection agencies will together meet their targets.

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