Thursday, January 18, 2018 /08:55AM / FBNQuest
DMO has found itself at the start of the calendar year with the familiar
challenge of having to set out its plans for FGN bond auctions without an
approved budget in place. We sympathise with its predicament. In the interim,
it looks to raise N110bn at next week’s auction from the reopening of the five
and ten-year benchmarks (14.50% Jul ‘21s and 16.29% Mar ‘27s).
DMO may well look, as last year, to front-load its issuance in the first
quarter, and create a little flexibility ahead of it as the executive and
legislature stumble through the budget process.
media accounts of the 2018 budget proposals submitted by the president to the
National Assembly in early November put the FGN deficit at N2.0trn, of which
borrowing was to cover N1.7trn.
We cannot confirm the figures, let alone
the split between domestic and external borrowing. We can say, however, that
the authorities have succeeded in enlarging the bid at auctions of bonds and
NTBs, and in pushing down the FGN’s borrowing costs. The marginal rates for
bonds have declined by +/- 360bps since August, and by substantially more for
the longer-tenor NTBs.
A good number of offshore investors have
returned to the market, being comfortable that they can exit through the NAFEX
window. At the same time, we have some concerns that domestic institutions may
shift from FGN paper holdings into domestic equities (Good
Morning Nigeria, 16 January 2018).
In a press release dated 16 January, the
DMO noted that it had raised N1.25trn from the domestic market, as required in
the 2017 Appropriation Act, from the sale of FGN bonds, NTBs, sukuk
instruments and green bonds. Our records show that it collected N1.50trn gross
from the sale of FGN bonds alone over the 12 months.
1. PMA Rates
decline further with Significant Demand on the 364-day