June 24, 2021/United Capital Research

Yesterday, the Debt Management Office (DMO) conducted an FGN bond Primary Market Auction (PMA) with the following instruments on offer; 16.2884% FGN MAR 2027 N50.0bn, 12.5000% FGN MAR 2035 N50.0bn and 12.9800% FGN MAR 2050 N50.0bn. As expected, investor demand remained strong as the 2027, 2035 and 2050 instruments were oversubscribed by 1.3x, 2.6x and 4.5x, respectively.

Marginal rates for the 2027 and 2035 instruments were reduced by 36bps and 50bps, respectively to close at 12.7% and 13.5%, from 13.1% and 14.0% at the May auction. Meanwhile, the newly introduced offering, 2050 instruments, closed at 13.7%. Compared to the marginal rate of the 2045s at the last auction, it declined by 50bps. Interestingly, the DMO sold 2.8x (N325.8bn sold vs N150.0bn offered) of what it initially offered, taking advantage of the huge bids from investors at the auction.

Yesterday’s auction lends further credence to our position that the upward yield reversal in the fixed income market has plateaued. This is consistent with the results of the NTB auction last week and the most recent MPC meeting. In subsequent trading sessions, we expect to observe some buy interest in the secondary bond market as residual demand is met. We also think that yesterday’s auction will set the tone for secondary market activity (bonds & NTB) this week and upcoming primary market auctions.

Lastly, regarding the equity market, we reiterate that the recent halt in the yield environment in the primary market coupled with potential dividend plays during the H1 earnings season could provide some temporary respite for the market. That said, we do not expect the equities market to stage a sustained rebound similar to 2020’s performance. 

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