Friday, May 21, 2021 / 10:22 A M / by FBNQuest Research / Header image credit: Research Gate


The WCO held its monthly FGN bond auction on Wednesday. It offered its regular NGN 150 billion, raised NGN 175 billion (USD 430 million) and obtained a total supply of NGN 282 billion. Marginal rates on the ten- and 15-year benchmarks increased by 85 basis points and 66 basis points respectively from the previous month. The instrument reopened over 30 years (April 49) was offered for the first time since February 2020. The DMO has an onerous domestic financing target of NGN 2.34 billion compared to the projected deficit of NGN 5.60 billion in the FGN budget 2021. (Its external target is currently the same). As a background, we recall that it collected a total of 1.66trn NGN (gross) on sales of FGN bonds in 2020.

The DMO has now raised 1.09trn NGN YTD in its bond auctions, including non-competitive sales to public agencies. When we factor in the smaller amounts generated from the sale of other debt securities such as Sukuk and Green Bonds, it is clearly on track on a pro rata basis to meet the target for the year.

On Tuesday, the president requested the green light from the National Assembly for additional external borrowing equivalent to 6.18 billion USD to partially finance the deficit projected in the 2021 budget.

When we try to align both the demand and the gossip around a return to the Eurobond market with the budget, we have to remember that the appropriations bill was based on an exchange rate. of 379 NGN. Several FGN statements have insisted that the investor and exporter window (I&E) rate applies to all of its transactions.

The rate / yield retracement from the low point in October and November continues. He probably has a little more to run. We suspect that the DMO’s unprecedented fundraising goal has become the main driver of the trend.

Domestic investors have the choice in the space of fixed income securities denominated in naira. Sales of corporate bonds have recovered and the continued securitization of domestic arrears from the previous administration could result in the tradable issuance of another NGN 1.5 billion.

Some foreign portfolio investors (REITs) outside the payments pipeline may be tempted to re-enter the market by a little more retracement. In our view, it is more likely that domestic institutions will race again and REITs will generally stick with less complicated transactions with similar (or better) returns elsewhere.

For next month’s auction, the DMO’s tentative issuance schedule shows that July 45 will replace April 49 as the proposed long bond. The coupon is five percentage points lower.

FGN Bond Sales and Auction (NGN bn)

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Sources: Debt Management Office (DMO); FBNQuest Capital Research

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