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An Auction to Please the DMO

Bonds
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Friday, July 15, 2016/ 9.38AM / FBNQuest Research

The DMO can be pleased with the outcome of Wednesday’s auction of FGN bonds. It secured a total bid of N232bn (US$820m), the highest for four months, and met its sales target of N120bn.

The DMO had looked to raise N40bn from each of the three instruments on offer (the new five-year benchmark, and the reopening of the Jan ‘26s and the Mar ‘36s). Given the bids it received, however, it raised N55bn from the sale of long bonds (Mar ‘36s) and held all marginal rates (effective cut-off points) below 15.0%.

The PFAs were again the principal bidders for the long bonds. Anecdotal evidence would suggest that their monthly inflows have softened with the fiscal challenges faced by government but also that their asset allocation has seen an increased weighting for FGN bonds at the expense of NTBs and money market instruments.  

Offshore buyers were again notable for their absence. They are unlikely to return until they are comfortable with the reformed exchange-rate regime.



The DMO will be content with the auction result yet still has to raise up to N125bn in August and N135bn in September according to its issuance calendar for Q3 2016. Further, it has to repay bondholders an estimated N560bn on the maturity of the Aug ‘16s.

These are tall targets, given official suggestions that revenue inflows ytd are running at 50% to 60% of projections. The 15.0% barrier for marginal rates appears set to be breached. 

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