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New Year, Old Challenge for the DMO

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Thursday, January 18, 2018 /08:55AM / FBNQuest Research


The DMO has found itself at the start of the calendar year with the familiar challenge of having to set out its plans for FGN bond auctions without an approved budget in place. We sympathise with its predicament. In the interim, it looks to raise N110bn at next week’s auction from the reopening of the five and ten-year benchmarks (14.50% Jul ‘21s and 16.29% Mar ‘27s). 

The DMO may well look, as last year, to front-load its issuance in the first quarter, and create a little flexibility ahead of it as the executive and legislature stumble through the budget process.  

Local media accounts of the 2018 budget proposals submitted by the president to the National Assembly in early November put the FGN deficit at N2.0trn, of which borrowing was to cover N1.7trn.

We cannot confirm the figures, let alone the split between domestic and external borrowing. We can say, however, that the authorities have succeeded in enlarging the bid at auctions of bonds and NTBs, and in pushing down the FGN’s borrowing costs. The marginal rates for bonds have declined by +/- 360bps since August, and by substantially more for the longer-tenor NTBs. 

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A good number of offshore investors have returned to the market, being comfortable that they can exit through the NAFEX window. At the same time, we have some concerns that domestic institutions may shift from FGN paper holdings into domestic equities (Good Morning Nigeria, 16 January 2018). 

In a press release dated 16 January, the DMO noted that it had raised N1.25trn from the domestic market, as required in the 2017 Appropriation Act, from  the sale of FGN bonds, NTBs, sukuk instruments and green bonds. Our records show that it collected N1.50trn gross from the sale of FGN bonds alone over the 12 months. 

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