Another Fine Outcome For The DMO


Friday, December 20, 2019 / 08:59 AM / FBNQuest Research / Header Image Credit: DMO


At this week's monthly auction of FGN bonds, the DMO sought to collect N150bn, raised N264bn (US$860m) and attracted a total bid of N288bn for the five, ten and 30-year benchmarks. This was a very good outcome for the DMO: sales were comfortably the best of the year, the bid was the highest since July and marginal rates fell by up to 100bps (in the case of the five year paper). The DMO also collected N23bn from sales on a non-competitive basis to public bodies, making N270bn in six months. Sales and the bid were the highest for the 30-year paper.


The FGN bond market has become more attractive to investors now that rates on NTBs have fallen far and fast.


Those rates have crashed because of a surge in buying by the domestic banks. Now that the CBN has raised the minimum loan-to-deposit ratio (LDR), the banks have increased their loan books but also seen a decline of up to 400bps in lending rates to the real economy. The challenge is to adjust their loan books and their exposure to FGN debt markets while meeting the higher LDR (and avoiding the CBN's penalties).


Sales and demand at FGN bond auctions (N bn)


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Sources: Debt Management Office (DMO); FBNQuest Capital Research



The DMO has raised N1.37trn from auctions in calendar year 2019 excluding non-competitive sales, and so comfortably met its domestic funding target of N850bn in the budget. It is setting aside proceeds for refinancing costs, notably a FGN bond maturity of N600bn in February, and a bunching of large coupon payments in January.


Its life, along with those of ministries and other public agencies, has been made simpler following the novelty of the sign-off on the next budget (2020's) ahead of the new year. We understand that the domestic funding target has been trimmed to N750bn. 

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