Job done by the DMO yet still more to do
The DMO approaches this week’s regular auction of FGN bonds from what appears a position of strength. It has already met its target of N1.25trn in domestic financing of the 2017 FGN budget deficit. It has collected N1.26trn (gross) from the nine monthly auctions held to date, and is looking to raise a further N100bn from the reopening of the five and ten-year benchmarks (Jul ‘21s and Mar ‘27s). This will be a challenge since generally the bid has been strongest for the 20-year paper, which is not on offer this month or indeed for the rest of the quarter.
- In the secondary market, the yields on the two issues on offer this week have declined by about 110bps since the last DMO auction, to 14.88% for the Jul ‘21s and 14.81% for the Mar ‘27s on Friday .The authorities will be hoping that the bid will be healthy and conceivably match September’s (N395bn), with a strong offshore element.
- While the DMO has bought itself some room for manoeuvre due to its textbook front-loading of issuance, it knows that it may have to raise additional funds because the deficit is almost certain to overshoot the projected N2.36trn in view of poor non-oil revenue collection.
- At the same time, it may have to adjust its strategy for the uncertainties surrounding the attainment of the target of N1.07trn (US$3.5bn at the budget rate of N305) for external financing of the deficit. It seeks to raise US$2.5bn from the sale of Eurobonds this quarter in favourable market conditions.
- · We await patiently the National Assembly’s go-ahead for these sales and for the FGN’s planned debt restructuring (Good Morning Nigeria, 15 August 2017).