February 23, 2018/ 08.56 AM/ FBNQuest Research
this week’s monthly auction of FGN bonds, the DMO offered N100bn, attracted a
total bid of N118bn and raised N80bn (US$260m) from sales. When we add that the
marginal rate for the five-year benchmark (14.50% Jul ‘21s) rose for the second
successive month and that the rate for the new ten-year bond was higher than
that for the benchmark it has replaced, we might feel that the results were
the DMO is in a stronger position than 12 months because of the FGN’s fiscal
planning and debt strategy.
The FGN’s 2018 budget proposals are under
discussion in the National Assembly. Our take is that the to-ing and fro-ing
between the executive and the legislature is unlikely to be any smoother than
in recent years. We understand, however, that the deficit in the proposals is
projected at a lighter N2.0trn and repeat that the strategy remains to shift
the balance of new borrowing to external markets.
Supply factors are therefore positive.
Additionally, we feel that the FGN’s externalization of its debt will deliver
further yield compression on naira paper. The proceeds of the recent US$2.5bn
Eurobond sales are being deployed to refinance domestic debt.
By way of explanation for the decline in
the total bid (see chart), we suggest: possible fatigue with the offering (see
below); a wait-and-see stance on the part of some investors as to the impact of
externalization: and, perhaps, a review of asset allocations by some domestic
The DMO is freshening up its offer at
auction. The Jul ‘21s have been offered every month since their launch and will
be available again next month. Yet the DMO will then issue a new seven-year
- CBN Resumes OMO to offset Inflows from Maturing
- Summary of FGN Bond Auction Results for February
- DMO Sells N52bn of New-10 Year Bond at 13.98%
- T-bill Yields Decline as CBN Maintains Hold on OMO
- Return to the Eurobond Market in Good Time
- Inter-Bank FX Rate hits Ytd High of N306.00 Per $
Amid CBN’s wholesale interventions
- Sustained Rallies on Bonds following Successful