May 22, 2020
by FBNQuest Research
The DMO can view the outcome of this week’s FGN bond auction with satisfaction. It offered N60bn, raised N296bn (US$770m) on a competitive basis and attracted a total bid of N426bn. Marginal rates moved between 20bps higher for the five-year and 30bps lower for the 15-year. This was the first auction since the DMO’s domestic funding target for 2020 was formally raised from N750bn to N1.60trn (Good Morning Nigeria, 18 May 2020). The DMO was to have raised N850bn externally until conditions in the Eurobond and other markets deteriorated.
When we add receipts from non-competitive bids including N95bn this month, which we assume to have come from public agencies, the DMO has raised N1.31trn from bond sales in five months this year. However, we should set a repayment on maturity of about N600bn in February against these gross auction proceeds.
The DMO can supplement these proceeds with its sales of green bonds, sukuk and savings bonds. Sales of its N150bn sukuk offering have opened this week. The minimum application has been set as low as N10,000.
We can trace the robust total bid to the ample market liquidity, which, in turn, we can trace to the recent scaling down of the CBN’s sales of bills within its open market operations (OMO). The bid was again dominated by the usual combination of banks and PFAs, which are drawn to the auctions when reinvesting the proceeds from maturing OMO bills (that they are no longer permitted to hold).
Sales and demand at FGN bond auctions (N bn)
Sources: Debt Management Office (DMO); FBNQuest Capital Research
Assuming the DMO achieves reasonable sales of other debt products, we estimated that it will need to raise about N100bn per month at the remaining auctions this year to attain its new funding target.