A Good Job by the DMO in the Circumstances


Tuesday, November 28, 2017 09:05AM /FBNQuest Research

The DMO can be content with last week’s monthly auction of FGN bonds. It offered N100bn, raised N88bn (US$290m) and attracted a total bid of N105bn. It has raised N1.44trn from bond sales this calendar year as well as N100bn from the maiden sovereign sukuk and a small contribution from the retail savings bonds. 

This leaves the DMO comfortably ahead of its target for the year of N1.25trn. Additionally, it has seen the marginal rates (effective cut-off points) for the Jul ‘21s and Mar ‘27s fall by 200bps over the past three auctions.

The DMO could celebrate the attainment of its funding target were it not for the divergence of the fiscal and calendar years. The 2017 budget was only signed off by the vice president in June this year, and it would be optimistic to anticipate the same for the 2018 budget before March at the earliest.

The decline in yields will be particularly welcome. The remorseless rise in the FGN’s bill for domestic debt service reached a new high in Q3 of N531bn, including N377bn for FGN bonds.

We see further modest compression in the weeks ahead, driven by the planned externalization of NTBs up to a ceiling of US$3bn equivalent, the successful Eurobond issuance, the firming oil price and the sense that the FGN is trying to get its fiscal house in order. This is capped by core inflation above 12% y/y and the JP Morgan delisting, which deters some offshore investors.

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The same two bonds are also on offer in December. There may be a case for testing the appetite for tenors above the current maximum of 20 years.

Not so long ago, the DMO was able to take a break from its programme of auctions in December. This has become a distant memory.

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