Pick-up in yields at FGN April 2016 bond auction

Proshare

Friday, April 15, 2016 9:07AM /FBNQuest Research

The DMO’s monthly auction of FGN bonds on Wednesday comfortably raised the sales target of N100bn (US$510m) from the reopening of three debt issues. The total bid of N207bn fell short of the previous month’s N262bn yet provided more than adequate cover for sales.

The marginal rate (effective cut-off point) was about 60bps higher than in March for the same three bonds, and rose above 13.00% for the benchmark long bond (Mar ’36). The dire inflation numbers for March may have pushed up the range of bids.

FGN bonds firmed yesterday as investors sought to enter the market.

The DMO raised a further N70bn from the sale of Jan ‘26s on a non-competitive basis to an unnamed public body.

It is not selling from a position of strength. Net domestic debt issuance is set this year at about N950bn, and holders of the Aug ‘16s have to be paid a further N560bn on maturity.

The DMO’s provisional issuance calendar for Q2 2016 has sales of up to N120bn in both May and June. Together with rising inflation, this would normally point to a widening of yields.



We note reports this week from Nigerian sources of US$6bn infrastructure financing from China. The same sources also suggested that the funds would be available on the identification of suitable projects.

As ever, we are waiting for more detail. The important point is that, the more the authorities can raise quickly from China and other external concessional sources, the less high-cost domestic debt they have to issue.

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