At its latest monthly auction of FGN bonds this week, the DMO offered N115bn, attracted a total bid of N144bn and raised N88bn (US$290m) from sales. It offered the same paper for the seventh month in succession, and plans the same for what remains of Q4 2018. The marginal rate was 7bps higher than in September for the 10-year benchmark, and unchanged for the two other instruments on offer. The overall sales were marginally down on the previous month (see chart) and again concentrated on the longest maturity on offer (Feb ‘28s).
- The DMO is well on its way to raising the target of N790bn in domestic financing within the 2018 budget. There are no sizeable FGN bond maturities remaining this year.
- In this latest auction, it has contained the cost of borrowing, which remains comfortably below what we understand is the assumed average rate in the same budget.
Sales and demand at FGN bond auctions (N bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
- On the demand side, the offshore bid at auction has declined in recent months. We understand that it was little more than N10bn (ex N159bn) in September. This is consistent with broader global trends (ie a retreat of varying degrees from emerging/frontier markets). These pressures are not set to go away: rather, they are likely to intensify as the normalization of US monetary policy continues. The issue is the size of the hit Nigeria will take.
- The DMO is fulfilling its remit but cannot be held responsible for broader fiscal shortcomings. The budget office’s Budget Implementation Report for Q4 2017 is instructive in this respect: it shows a full-year deficit of N3.81trn (vs the target of N2.36trn), of which N1.30trn was unfunded after mandated borrowing of N2.51trn through the DMO.