FGN bond yields trending up; widens by 112bps in January


Monday, January 25, 2016 08:55 AM / FBNQuest Research

The DMO held its latest monthly auction of FGN bonds last week, the first for this year, and raised 75bn (US$377m) from the sale of two debt instruments. These were a re-opened issue of 15.54% Feb ‘20s and a new ten-year issue of 12.50% Jan ‘26s. The marginal rate (effective cut-off point) widened by 129bps on the ‘Feb 20s.

On the secondary market, the average yield for the liquid bonds we track was 10.82% in December and has widened by 112bps in January.

The total bid of N149.5bn picked up slightly from N145.8bn recorded the previous month (December 2015). On a year-on–year basis this translates into a sharp increase of 15%.   

An additional N10.83bn of the Jan ‘26s was allotted on a non-competitive basis.

There was marginal participation by the offshore community and this is likely to persist until the country’s macro environment as well as liquidity in the fx market improves. The dominant players were the PFAs and this was seen particularly in the ‘Jan 26s.

We see yields within the range of 10.00% to 12.50% over the next few weeks. The next key catalyst to watch is the MPC meeting which is scheduled to hold today and tomorrow.

The budget proposal for 2016 projects net domestic borrowing at N980bn this year. With the continuous decline in oil prices, there are concerns that the projected net domestic borrowing figure may increase. We believe this is one of the reasons yields are trending up.

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