Culled—Proshare

April 28, 2020

By FBNQuest Research                                                                                

The calendar of the Debt Management Office (DMO) for the sale of FGN bonds in Q2 2020 reissues the existing five, 15 and 30-year benchmarks. It may well be adjusted in line with changes to the 2020 budget that the FGN has been reworking with the National Assembly. The domestic funding target of N745bn may be revised and, more significantly, the external funding target of N850bn, approved by the assembly before the current market turmoil, may be transferred in part or fully to the domestic. The second eventuality could be a game-changer for the DMO and the market.                           

The calendar seeks to raise between N75bn and N165bn from competitive bids over the quarter, and managed N156bn in the first month (Good Morning Nigeria, 24 April 2020).

The DMO has a solid base of domestic institutional investors in the form of the PFAs, which held 51% of all FGN bonds in issue at end-December according to data from the regulator.

The CBN circular that excluded non-bank domestic players, the PFAs notably, from holding its OMO bills, indirectly reinforced their presence at the auctions. We would expect later monthly reports from the regulator to show a still higher proportion of the bonds held by the pension funds. The loser would be the NTBs, for which the returns have crashed well below 5%.

The DMO is well-positioned in terms of its target if its remit for 2020 is not changed. If it has to work with new targets, it will have to operate in a market seemingly oversupplied with paper. It may also have to contend with plans to securitize the FGN’s Ways and Means advances from the CBN.

Maturity profile of FGN bonds (N bn)

Sources: Financial Markets Dealers Association (FMDA): FBNQuest Capital Research

Our chart shows that the DMO has created a decent curve out to 30 years, adding new 15 and 30 year benchmarks at its auction in March this year.