Another Positive Outcome for the DMO At the February 2020 Auction

Thursday, February 27, 2020 / 10:25 AM / By FBNQuest Research / Header Image Credit: Annuity1

While a less striking outcome than the previous month, the auction of FGN bonds by the DMO last week was still a notable success. It offered N140bn, raised N100bn (US$270m) on a competitive basis and attracted a total bid of N398bn.

Further, marginal rates declined for all three instruments, and by 110bps for the five-year benchmark. The DMO collected N410bn (gross) from bond sales in January and positioned itself for a maturity of about N600bn earlier this month. It has a net domestic borrowing target of N745bn per the approved 2020 budget.

When we add sales proceeds from non-competitive bids, which we assume to originate from public agencies, the DMO has raised N572bn from bond sales in just two months. It is set to supplement these proceeds with sales of sukuk, green bonds and savings instruments.

Sales and the bid were again the highest for the 30-year paper, which points to robust demand from the PFAs for matching purposes. Along with other domestic non-bank investors, they are no longer eligible to take part in the CBN's open market operations (OMO). Therefore they require new investment outlets when their OMO bills mature. This brought about a sharp fall in the yields for NTBs in Q4, and the same trend is now evident for the bonds.

This is borne out by monthly data from Pencom. PFAs' holdings of the bonds increased by N490bn in December while those of NTBs declined by N240bn. We would expect this trend to continue into this quarter.

The interest rate assumptions in the 2020 budget are not public knowledge. Nonetheless, the long period of budget preparation and the sharp compression of yields, notably for NTBs, tell us that the projection of N2.45trn for total debt service this year (excluding the sinking fund for contractor promissory notes) is conservative.

Related News

1. The Bulls Still Out in the T-Bills Market as DMO drops rates on the 362-DTM
2. DMO Request for EOI for the Appointment of the Transaction Parties for the Issuance of FGN Eurobonds
3. Treasury Bill Auction Holds On Wednesday Feb 26th, 2020
4. Coronation Merchant Bank Commercial Paper Issuance Series V and VI Now Open
5. Anchoria Fixed Income Monitor: CBN Regulates Customer's Deposit in Domiciliary Account
6. NT-Bills Average Yield Up 7bps WoW to 3.9%; Coronation MB CP Available
7. OMO Yields Drop Further in the T-Bills Market as the Long-dated Maturities Trade below 12% Levels
8. Nigeria Has A Good Chance To Boost Its Reserves And Prevent Devaluation In 2020 - Coronation MB
9. February 2020 FGN Bond Auction Oversubscribed
10. Summary of FGN Bond Auction Results For February 2020
11. DMO Sell N100bn at the Bond Auction as Rates Drop to a 5-Month Low
12. Planned External Capital Raising Is to Part Finance Budget 2020 Deficit and Maturing Eurobond
13. DMO Announces The Appointment of CSL Stockbroker as the New Government Stockbroker
14. Eterna Plc Series 2 Commercial Paper Closes Today