Another Step Towards the DMO's Funding Target


Friday, June 25, 2021 / 09:04 AM /  By FBNQuest Research / Header Image Credit: Premium Times


Proshare Nigeria Pvt. Ltd.

On Wednesday, the DMO held its monthly auction of FGN bonds. It offered its regular NGN150bn, raised NGN326bn (USD790m) and secured a total bid of NGN418bn. The marginal rates on the ten and 15-year benchmarks declined by 36bps and 50bps respectively from the previous month. The DMO was to have offered the Jul '45s but sold the Mar '50s in lieu at a marginal rate of 13.70%. Wednesday's auction has to be viewed as another exemplary effort by the DMO. It has an onerous domestic funding target of NGN2.34trn towards the projected deficit of NGN5.60trn in the FGN's 2021 budget. By way of context, we recall that it collected a total of NGN1.66trn (gross) from FGN bond sales in 2020.


Over six months the DMO has now raised NGN1.42trn at its bond auctions including non-competitive sales to public agencies. When we add the smaller amounts it generates from the sale of other debt instruments such as sukuk and green bonds, it is clearly on track pro rata to meet the target for the year.


The retracement in rates/yields from the low point in October and November continues. It probably has a little further to run. The DMO's unprecedented funding target, which was a 40% plus increase on the previous year's (itself already a record), has surely been the main driver of the retracement.


Domestic investors do have some choice in the naira-denominated fixed-income space. Corporate bond sales have picked up: issuance by Nigerian corporates increased by 52% in 2020 to NGN1.02trn, divided between commercial paper (75% of the total) and bonds. A prominent ratings agency sees similar corporate issuance this year.


Further, the continuing securitization of the previous administration's domestic arrears could bring tradable issuance of another NGN1.5trn. Looking further ahead, there has been talk of the same treatment of the FGN's Ways and Means advances from the CBN, estimated at up to NGN10trn. The new debt instruments, held by the CBN, might subsequently become tradable in the market.


All said, the domestic institutions are still the core buyers of the bonds, which accounted for 60% of the assets under management of the PFAs at end-April. 


Some foreign portfolio investors (FPIs) outside the payments pipeline may be tempted back into the market by a little more retracement. More likely in our view, the domestic institutions will again make the running and the FPIs will generally stick with less complicated trades with similar (or better) returns elsewhere.


In the first week of July we hope to see the DMO's issuance calendar for Q3 '21. It generally takes soundings from domestic institutional investors before its release.


Sales and demand at FGN bond auctions (NGN bn)

Proshare Nigeria Pvt. Ltd.

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

Proshare Nigeria Pvt. Ltd.

Kindly share and stay connected with us on our platforms HERE

You can also subscribe to Proshare's Newsletter here

Related News

  1. June 2021 FGN Bond Auction Review: Rates Party Coming to a Close?
  2. Summary of FGN Bond Auction Results for June 2021
  3. DMO Sells N330bn Worth of FGN Bonds on the Back of a Strong FGN Bond Auction Demand
  4. FG, Corporates Raised N4.58trn from the Fixed Income Market as of June 3rd, 2021 - NGX
  5. ETI Opens the Market at the LSE after Successfully Listing its US$350m Sustainability Bond
  6. System Liquidity Rolls Back into Negative as Banks Opens Fresh REPO With CBN
  7. Ahead of Next FGN Bond Auction Scheduled for 23rd June 2021
  8. A Tad Bearish Day in The FGN Bonds Market Ahead of the June 2021 FGN Bond Auction
  9. Slight Pullback in FGN Bond Yields as Demand Pressure Subsides
  10. Lafarge Africa Announces the Redemption of Its Matured N33.6bn Bond Due June 15, 2021
  11. Unexpected Crash in FGN Bond Yields Triggered by Short Covering from Market Participants
  12. Invest in FGN Monthly Bond Auction - June 2021
  13. Standard Chartered Acts as Lead Manager in the ETI US$350m Tier 2 Sustainability Notes
  14. Local Markets Resume from The Holidays with A Whimper, Eurobonds Risk-Off Ahead of US FED Meeting
  15. Commercial Paper Issuance by Corporates to Increase in H2, 2021
  16. Ecobank Transnational Incorporated Launches US$350m 10NC5 Year Tier 2 Sustainability Notes
  17. CBN Advertises List of Investors with Unclaimed Interest and Redemption Proceeds on FGN Bonds

Proshare Nigeria Pvt. Ltd.
Related News