Challenge of the DMO’s Issuance Calendar

Proshare

Monday, July 04 2016 9:42AM /FBNQuest Research

The DMO has issued its provisional issuance calendar for Q3 2016. It looks to raise between N305bn (US$1.08bn) and N405bn (US$1.43bn) over the quarter. This marks a pick-up from Q2 when it raised N265bn.

However, it has to repay N560bn to bondholders on the maturity of the Aug ‘16s and meet the N940bn net domestic borrowing requirement in the 2016 budget, which requires fine-tuning as a result of the naira devaluation on 20 June.

This increase in supply, together with rising inflation, together point to yield widening.

We would expect the PFAs again to be prominent buyers at the auctions. Data from PenCom for March show their holdings of FGN bonds at N3.24trn (US$11.45bn), equivalent to 59.3% of their AUM. Additionally, they held N450bn in NTBs and N150bn in state government bonds.

As for offshore buyers, we could see some interest from investors with risk appetite who convert funds in the lengthy repatriation process into buying orders. The same process has reportedly been seen with equities.



The DMO is launching a new five-year benchmark this month. Its other offerings are the re-openings of the ten-year (Jan ‘26) and the 20-year (Jan ’36) benchmarks.

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