A Much Better Auction for the DMO


Friday, April 24, 2020 / 12:31 PM  / By FBNQuest Research / Header Image Credit: Pixabay


The DMO can look back to a successful outcome of Wednesday's FGN bond auction. It offered N60bn, raised N156bn (US$410m) on a competitive basis and attracted a total bid of N276bn. Further, marginal rates declined for all three instruments, and by 100bps for the five-year benchmark (Apr '23s). It raised just N50bn in March because it wanted to hold down the coupons for the new 15 and 30-year benchmarks. The DMO has a net domestic borrowing target of N745bn per the approved 2020 budget.

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When we add sales proceeds from non-competitive bids, which we assume to originate from public agencies, the DMO has raised N828bn from bond sales this year. This includes a record N412bn collected in January. However, we have to set a bullet repayment on maturity of about N600bn in February against these gross auction proceeds.


The DMO can supplement these proceeds with its sales of green bonds, sukuk and savings bonds.


In the context of the current domestic target for the year, the DMO is well positioned. Life has changed dramatically due to the crashing oil price and the onslaught of Covid-19 however, and it warned in its provisional issuance calendar for Q2 2020 that net external borrowing of N850bn, which the National Assembly has approved, may now have to be raised domestically. The 2020 budget is currently being reworked to reflect the "new normal".


Sales and demand at FGN bond auctions (N bn)

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



There is another potential source of supply to naira debt markets: the securitization of the FGN's Ways and Means advances from the CBN has been suggested in semi-official circles. Clearly the DMO would not be so well positioned if both eventualities came to pass. 


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