The DMO has released its provisional issuance calendar for Q4 2016. It looks to raise between N250bn (US$820m) and N340bn (US$1.11bn) from the sale of FGN bonds over the three monthly auctions. In line with established and best practice, issuance again slows in the fourth quarter of the calendar year: however, the range compares with sales of N180bn in Q4 2015, highlighting the expansionary stance and large projected deficit of N2.2trn in this year’s budget. In many other markets these conditions would push up yields/the FGN’s cost of borrowing.
The total bid has fallen off since a recent peak in March but should suffice for the DMO’s purposes in the quarter ahead. Given their general aversion to equities, demand from the PFAs is set to remain steady, notably for the long bonds for matching purposes. Their combined holdings of N3.42trn in FGN bonds at end-July amounted to 58.7% of their AUM.
The offshore investor with risk appetite and patience over repatriations is more likely to be drawn to yields above 20% on longer tenor NTBs.
The fiscal challenges have had minimal impact on yields, which have settled into a range of +/- 15.0% in mid-curve in recent weeks. We think that this underlying domestic institutional demand will constrain yield widening on the FGN bonds for the time being.
The DMO is reopening the three issues it has sold for the last three months (Jul ‘21s, Jan ‘26s and Mar ‘36s).