Healthy demand for two new FGN bonds

At this week’s monthly auction of FGN bonds, the DMO offered N100bn, secured a total bid of N149bn and raised N97bn (US$320m) from sales. At the previous auction, it rejected the vast majority of bids and so drove down the marginal rates by up to 144bps. This week the DMO launched a new benchmark for 10-year paper and the first 30-year bond in a highly successful operation. At the opening of yesterday’s session, investors entered the market to buy the new instruments. (The rate for the existing five-year benchmark rose by 100bps.)


  • The local banks would appear to have stayed on the sidelines for the 30-year instrument because they were unsure how it would fly. They may have since changed their thinking. Indeed, we would expect to see good demand for this new benchmark at the next auction and beyond, given that it meets a core need of the PFAs.
  • The DMO has given itself some room for manoeuvre. It has now raised N761bn competitively at auction since June, when the 2018 budget was signed off with a N790bn domestic financing target.
  • The 2019 budget proposals are due to be examined by the Senate next week, according to the local media. They project deficit financing through borrowing of N1.68trn, divided equally between domestic and external sources.


Sales and demand at FGN bond auctions (N bn)

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


  • The DMO can do no more than hit the funding targets it is set. Budgets can sometimes overshoot, however: so in the first nine months of 2018, the FGN deficit of N2.51trn was covered to the extent of N910bn by domestic and external borrowing through the DMO, leaving N1.60trn “unfunded”. The position will look less dire in the full-year figures due to Eurobond sales of US$2.8bn in November as well as the second N100bn sukuk.

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