An Acceleration in Bond Issuance

Monday, May 18, 2020 / 10:17 AM / By FBNQuest Research / Header Image Credit: Shutterstock

Now that the National Assembly has approved the reallocation of deficit financing of N850bn for this year from the external to the domestic market, the DMO has revised its issuance calendar for Q2 2020. Its funding target for the year is now N1.60trn from the domestic market rather than the previous N750bn. The DMO has not changed the menu for this week's auction but in June it now seeks to raise between N135bn and N165bn, compared with the earlier N15bn to N45bn. The same five, 15 and 30-year benchmarks are on sale.

The DMO does have other debt products to offer investors but the reality is that the FGN bond market will provide the lion's share of the N1.60trn target.

Normally, such a large increase in supply feeds into returns. The FGN will surely be the loser. We should add that two programmes of securitization will add to the stock of tradeable FGN paper: the existing programme in which promissory notes totaling N970bn had been issued as at end-February, and a second programme proposed for the FGN's Ways and Means advances from the CBN.

In four months the DMO has raised about N820bn from the monthly auctions including non-competitive sales and has paid out about N600bn on the maturity of a bond in February. Even if we make a generous assumption about the funds the DMO can collect from marketing the likes of sukuk and green paper, we estimate that it will need to raise approaching N150bn per month for the rest of the year to hit its target.

The DMO no longer has an external funding target for this year. However, the FGN has sought concessional external funding of about N2.54trn equivalent, of which it has already banked N1.22trn from the IMF.

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