Further rate rises at DMO auction

At its latest monthly auction of FGN bonds in mid-August, the DMO offered N90bn, attracted a total bid of N101bn and raised N40bn (US$130m) from sales. It offered the same paper for the fifth month in succession, and the marginal rates were higher than in July for all three instruments by 39bps to 70bps. The auctions since April have seen a trend decline in the total bid and a steady pick-up in rates. The overall modest sales, the second lowest in the past year, were again concentrated on the longest maturity on offer (Feb ‘28s).


  • Our call is that FGN bond yields have settled on a plateau, with a slight upward bias, for the weeks ahead. We see evidence of fatigue on the part of domestic institutions and sense that the offshore community is guided by the normalization of US monetary policy. Contagion from the most troubled EMs such as Turkey and Argentina has been limited. The returns on Nigerian paper are among the best in the EM universe for local currency government debt.


  • The DMO has some breathing space because its domestic funding target in the 2018 budget has been cut to N790bn from N1.25trn the previous year.


Sales and demand at FGN bond auctions (N bn)

Sources: Debt Management Office (DMO); FBNQuest Capital Research
  • Budget and calendar years overlap of course through no fault of the DMO. It raised N1.45trn from its monthly auctions in 2017 and has achieved a further N530bn year-to-date.
  • It now has additional products to offer such as the sukuk, and green and savings bonds. We saw a hopeful statement from an advisor to the FGN on the environment that it would raise N150bn from green bond sales this year but should probably wait for the promised issuance programme from the DMO. As for the sukuk, the maiden issue of N100bn was oversubscribed, in addition to which there is proven demand in the secondary market.

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