Ms Patience Oniha
Director-General,Debt Management Office, Nigeria. Image Credit: DMO
September 25, 2020
By FBNQuest Research
At this month’s FGN bond auction, the DMO offered N145bn across the four re-issues, raised N104bn (US$270m) and attracted a total bid of N360bn. The marginal rates were between 70bps and 96bps lower than in August. The total bid was swollen by a FAAC inflow and an OMO maturity this week. The DMO was highly selective in its acceptance of bids, collecting just N5bn from sales of the Mar ’50s for which it attracted demand of N164bn. It is eager to maintain a conventional yield curve across the re-issues, and possibly wary of pushing returns down too quickly.
When we add receipts from non-competitive bids from public agencies, the DMO has raised N1.74trn from bond sales in nine months this year. However, we should adjust this gross figure for a repayment on maturity of about N600bn in February.
The federal finance ministry and budget office do not share their interest rate assumptions but it would appear, given the direction of rates on NTBs (Nigerian T-bills) and the FGN bonds, that they will see some savings on the N2.68trn projection for total debt service in the revised 2020 budget. The outturn in 2019 was N2.11trn.
The topical question is how far the narrowing of yields will run. The PFAs are the main holders of the bonds and may have few, if any compelling investment alternatives with comparable returns. We doubt, however, that the DMO will be complacent in these circumstances.
Sales and demand at FGN bond auctions (N bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
On nine months’ performance, we feel that the DMO has positioned itself well to meet its funding target for the year of N1.60trn and build an additional cushion. It also raises funds from the sale of other debt instruments such as the sukuk and green bonds.