Softening of auction demand for FGN bonds


Tuesday, July 14, 2015 8:52AM / FBN Capital Research   

The DMO holds its latest monthly auction of FGN bonds tomorrow, and seeks to raise N70bn (US$350m). The offer is divided between re-openings of the 15.54% Feb ‘20s (N40bn) and the 12.15% Jul ’34s (N30bn). The DMO has the same combination of debt instruments for each month in its issuance calendar for Q3 2015.


The total bid has averaged N150bn over the past year. The trend, however, has been downward, and demand declined in June to N131bn as a result of a delay in the FAAC distribution. Liquidity levels in the market have been comfortable, and we would expect the DMO to hit its sales target for July.


The PFAs are set to be core bidders at the auction. The banks have been known to sell paper in the secondary market, and then bid at auction.

We see at best marginal participation by the offshore community. This is likely to endure until liquidity improves in the fx market.  

JP Morgan’s threat to remove Nigeria from its government bond indices hangs over the market. The authorities are unlikely to provide the necessary assurances since they would thereby diminish their influence in the market.

The net domestic borrowing requirement is set at N624bn in the 2015 budget. The onus falls upon the DMO, particularly as the CBN issuance calendar for NTBs for Q3 shows a gap of N90bn between the planned rollover and maturing bills. The DMO has raised N450bn (gross) from the sale of bonds in H1, and, even allowing for the frontloading of issuance, is likely to make a larger contribution to deficit financing than projected in the budget.

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