Bond Auction Q4 2018: Increased Borrowing on the Horizon

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October 11, 2018/Cordros Update

  • The Debt Management Office (DMO) recently released the Q4-2018 bond issuance calendar, and in line with our expectations, it indicates a NGN67 billion – NGN112 billion increase in planned borrowing, to NGN270 billion – NGN360 billion, compared to NGN203.34 billion sold in the previous quarter. 
  • We reiterate our expectation for yield uptick in the bond market, albeit below 2017 highs of 17.12%. Our position remains anchored on the increased hawkish delineation of the monetary policy committee through the rest of the year, combined with expected weaker participation by foreign investors as the Fed continues its tightening stance, the impact of which will sustain foreign investors apprehension towards naira denominated assets. 
  • On the MPC, whilst the committee elected to leave policy parameters unchanged in its last meeting, its body language largely tilted towards hawkish stance. Specifically, aside from the three members voting for a rate hike, three more members elected to hike CRR rate suggesting that the committee is betwixt and between about the liquidity surfeit in the system, together with recent uptick in inflation. 
  • To add, we see scope for higher federal government borrowing over the rest of the year as the administration remains steadfast in implementing the 2018 budget to score political points ahead of the general election.

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