Rise in yields at FGN bond auction

The DMO held its latest monthly auction of FGN bonds on Wednesday, and raised N110bn (US$336m) from the sale of three debt instruments. These were all reopened issues (14.50% Jul ‘21s, 12.50% Jan ‘26s and 12.40% Mar ‘36s). There was reasonably strong demand at the shorter end of the curve. However, the DMO raised N40bn from the sale of long bonds (Mar ‘36s). All marginal rates (effective cut-off points) increased compared with the previous auction, resulting in a widening of 58bps on the Jul ‘21s, 38bps on the Jan ‘26s and 55bps on the Mar ‘36s.
Despite the recent hike in the MPR by 200bps which was aimed at making bond yields more attractive, the bond auction closing level was relatively unchanged from July’s auction.

The total bid of N210bn was considerably lower than the total bid of N232bn recorded in July. The participation of offshore investors was again negligible. They are unlikely to return until they are comfortable with the reformed exchange-rate regime and are able to gain some clarity with structural issues surrounding the economy.

An additional N109.6bn of the Jul ‘21s was allotted on a non-competitive basis.

Rise in yields at FGN bond auction

Through its monthly auction the DMO has raised about N760bn from the domestic market year-to-date, compared with N564bn raised during the corresponding period last year. The increased borrowing is primarily linked to the government’s need to fund the projected deficit of N2.2trn in the 2016 budget.

We see FGN bond yields within a range of 14.50% to 15.50% in the coming weeks.

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