More work for the DMO at auction
The DMO looks to raise N135bn from next week’s monthly auction of FGN bonds, and is offering the same five, ten, and 20-year benchmarks as in the past four months. Its record has been exemplary this year, having raised N960bn in seven months towards the target for net domestic financing in the 2017 budget of N1.25trn. We might think that the DMO will therefore halt its auctions towards the end of the year. Far from it, it is preparing itself for some bond maturities and has to keep an eye on progress with external financing of the projected deficit of N2.36trn.
· We understand that the Eurobond sales of US$1.5bn in Q1 are considered financing of the 2016 budget deficit. The treatment of the US$300m diaspora bond sales is unclear so it may be that external financing of the 2017 deficit is currently nil.
· The total bid has trended downwards this year. July’s of N129bn was less than the offer of N135bn. The shortfall was limited to the Jul ‘21s. for which the DMO offered .N35bn and the bid was just N9bn.
· It will be watching out for the broader market impact of the FGN’s proposal to refinance maturing NTBs with USD-denominated instruments of up to three years’ tenor. If approved, the restructuring would be subject to a ceiling of US$3bn. It would also have a fairly rapid impact, given the tenor of the debt instruments being refinanced (NTBs). Taken in isolation, the tightening of the supply of NGN-denominated paper should bring downward pressure on yields. The stock of NTBs at end-March was the equivalent of US$11.8bn.
Sales and demand at FGN bond auctions (N bn)
Sources: Debt Management Office (DMO); FBNQuest Research
· The DMO will be hoping, having increased its rates, to step up its sales of the two and three-year FGN savings bonds. Its allotment in the August issue was just N740m, and the average successful application N960, 000.