At its latest monthly auction of FGN bonds in late May, the DMO offered N70bn, attracted a total bid of N90bn and raised N51bn (US$170m) from sales. The bid and the sales were the lowest since August 2017 and December 2016 respectively. Additionally, the DMO offered the same three debt instruments as the previous month, and the marginal rates were higher in each case by between 65bps and 75bps. However, the auction was not the flop it might appear at first because both the federal finance ministry and the DMO are in a better place than for many months.
- The DMO has some room for manoeuvre in its acceptance of bids because it appears to have comfortably met its domestic funding target of N1.25trn embedded in the 2017 budget.
- We have to be careful because of the fluidity of budget years as a result of the habitual delayed passage of the appropriation bill. Although the 2018 budget has not yet been signed off by the president, the document approved by the National Assembly has set the FGN deficit at N1.96trn according to local media reports.
- Once we allow for the DMO’s policy of raising the external share of the FGN’s total debt, it would appear that its domestic funding target will be rather less than 2017’s. Most importantly, along with the ministry it has a story (its strategy of the externalization of debt) and a track record of yield compression over nine months to sell investors. (Admittedly, that compression has been steadier and more marked at the CBN’s auctions of NTBs.)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
- The timing of these latest FGN bond auctions coincided with global headwinds that have been visible across the emerging and frontier market universe. Although the impact is greater elsewhere, the headwinds have not abated.