Bonds & Fixed Income | |
Bonds & Fixed Income | |
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PROSHARE | |
PROSHARE |
Friday,
June 19, 2020 / 09:28 AM / By FBNQuest Research / Header
Image Credit: Irish Times
The
DMO can draw several positives from this week's FGN bond auction, when it
offered the same menu for the fourth month in succession. It offered N150bn,
raised N100bn (US$260m) and attracted a total bid of N545bn. Marginal rates
were 45bps-120bps lower than in May, so the DMO was able to bring down the
FGN's borrowing costs. The total bid was the highest for at least six years (other
than January this year), and the DMO was able to maintain a conventional yield
curve. Its funding target for 2020 stands at N1.60trn, which is to be fully
raised in the domestic market.
When we add receipts from non-competitive bids from public agencies, the
DMO has raised N1.31trn from bond sales in six months this year. However, we
should set a 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. Sales of its third sovereign sukuk earlier this month
reached N163bn, and the initial offer was more than four times oversubscribed.
It seems that sukuk refunds formed a good part of the total bid
this week. More generally, the FGN bonds are popular with PFAs, fund managers
and high net worth individuals, all investor categories with cash to deploy
regularly. They have very few investment alternatives with comparable returns.
Sales and demand at FGN bond
auctions (N bn) |
|
Sources:
Debt Management Office (DMO); FBNQuest Capital Research |
Assuming the DMO achieves reasonable sales of other debt products, we
estimate that it will need to raise about N100bn per month at the remaining
auctions this year to attain its enhanced funding target. It has manoeuvred
itself into a good position, such that it can be a bit more selective in its
acceptance of bids at auction.
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