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A Hint of Investor Fatigue

Bonds
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Tuesday, November 29, 2016/9:26 AM /FBNQuest Research

The DMO sought to raise N95bn from its most recent monthly auction of FGN bonds yet registered sales of just N39bn (US$130m). Monthly sales are generally steady and the rare dips can be explained by the DMO’s determination to halt upward pressure on yields by setting marginal rates that reject the majority of bids.

In November, however, the total bid slumped to N62bn, the lowest since January 2012 when our records begin. Given the FGN’s sizeable borrowing requirement this year and next, a continuation of this trend would be highly damaging.

It would increase the dependence on external financing of the budget deficit. We favour such financing but it comes neither easily nor rapidly, which is evident from the delay in launching the sovereign Eurobond and securing the World Bank funding.

One explanation for the exceptionally low total bid lies in the fact that the auction was held before the latest monthly release of FAAC monies.   



This would affect the banks. Turning to the PFAs, we just hope that their low bid was a one-off. Data from Pencom show that 59% of their AUM at end-September was invested in FGN bonds. These holdings of N3.50trn represented 47% of the stock of bonds at end-June.

On a related point, we note a number of official suggestions that the assets managed by the PFAs should somehow be mobilized to finance Nigeria’s huge infrastructural deficit.

This would be welcome as a voluntary exercise although some of the throwaway remarks overlook the fact that the assets are the savings of individuals.

A large shift in this direction could reduce their monies invested in FGN paper.

Related News

1.       Summary of Auction Results for November 2016

2.      Invest in FGN Monthly Bond Auction – November 2016

3.      FGN’s Contingent Liabilities Put at N1,656bn at the end of 2015

4.      FGN External Debt Mostly Concessional

5.      Still healthy debt stock ratios

6.      Rise in Yields at FGN Bond Auction

7.      ICM Return in Line With Debt Strategy

8.     Expect to see a pick-up in FGN external borrowing 

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