Another successful bond auction for FGN, says FBN Capital

The Debt Management Office (DMO) held its latest monthly auction of FGN bonds last week Wednesday, and raised N80 billion.

The target had been N70 billion, divided equally between the two issues re-offered, but the strength of the total bid of N205 billion enabled the office to collect N50 billion from the sale of the 10-year paper (March ‘24s).

This was another successful auction for the FGN, which is able to tap into consistently strong domestic institutional demand, led by the PFAs. Yields fell from 12.00 percent the previous month to 11.36 percent for the August ‘16s and from 12.55 percent to 12.25 percent for the March ‘24s.

In line with best practice, the DMO has front-loaded its issuance and raised N465 billion (gross) in H1 2014. In recent years, Nigeria has not had an approved budget for most of the first half. The belatedly approved 2014 budget projects a FGN deficit of N912 billion, of which net domestic borrowing is the largest element.

The deficit in the first four months amounted to N430 billion (Good Morning Nigeria, June 13, 2014). While this represents a pro rata overshoot, we note that the first and fourth quarters tend to be the weakest in fiscal performance. We do not see a fiscal implosion ahead of the elections, and would not be surprised if the deficit for the year meets the ceiling of 3 percent of GDP set in the Fiscal Responsibility Act (2007).