The good health of the DMO

The DMO holds its third monthly auction of FGN bonds of the year next week, and looks to raise N130bn. It is operating from a position of relative strength, having already raised N375bn (US$1.23bn) from January and February combined by the simple expedient of paying “top dollar” to investors. The total bid of N337bn in February was the highest for at least five years. The DMO is reopening its current five- and 20-year benchmarks (Jul ’21s and Mar ‘36s), and launching a new 10-year instrument to replace the 12.50% Jan ‘26s.

The FGN’s 2017 budget proposals project a FGN deficit of N2.36trn and domestic borrowing of N1.25trn.

We have noted how the DMO has made a good start to the year with the front-loading of issuance. There are now also some alternatives to FGN bonds to cover the domestic element of deficit financing.

The FGN is looking to raise N20bn from the sale of Nigeria’s first “green” bond. The DMO, together with the SEC, is working on the launch of the country’s first sukuk (Islamic bond) in local currency. Further, the CBN’s issuance calendar for NTBs through to 01 June shows net sales of N43bn.

Sales and demand at FGN bond auctions - FBNQuest Research

Another new product is the FGN’s first retail savings bond, which the DMO is launching this week with two- and three-year tenors as well as a maximum investment of N50m.

The FGN in our view is far better prepared than last year to achieve its domestic borrowing target, albeit at a high cost.

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