The bond issuance calendar of the Debt Management Office (DMO) for 2015 may have come under pressure given the lingering macroeconomic and political uncertainties that are sustaining investors’ apathy.
DMO tested the waters aimed at raising N73 billion at its maiden bond auction Wednesday for 15.10% FGN April 2017 (5-yr re-opening); 14.20% FGN March 2024 (10-yr re-opening); and 12.1493% FGN July 2034 (20-yr re-opening).
Ahead of the auction result, dealers said as trading activity remained weak, bond investors stayed on the sideline to avoid probable surprises from the auction result.
Analysts said investors’ recent fatigue over Federal Government debt instruments resulted from general macro worries which are prompted by recent pressure on oil price. This is in addition to compelling rates on money market instruments; as well as the squeezing of liquidity in the banking system, through tighter monetary policy.
“The bond market has been relatively quiet since the year opened, albeit investor sentiment remains bearish. Even as the yield curve remains flat since year-open, we note the negative sentiment on the benchmark notes, which are offered at the maiden auction,” market analysts at Associated Discount House told BusinessDay.
“We expect the 5-year, 10-year and 20-year notes to close at 15.1%, 15.3% and 15.5% stop rates, respectively. Notwithstanding the relatively benign inflation rate (barely 10bps rise to 8.0% in December; single digit inflation for 24 consecutive months), we expect a modest sell-off in the bond market, especially as expectation of higher public sector borrowing reinforces our outlook on supply-induced rise in yields. More so, foreign investors will remain conservative on Nigerian bonds in the near term, on concern over currency and election risks, as well as weakening fiscal position,” the analysts further said.
“Nigeria’s 2015 macroeconomic performance is expected to be influenced by a number of variables, including crude oil prices, foreign exchange movements, national security, global financial markets, fiscal and monetary policies, as well as the outcome of the 2015 elections,” said Oscar Onyema, CEO, Nigerian Stock Exchange.
While presenting the capital market review and 2015 outlook, Onyema said, “A strengthening dollar may continue to precipitate foreign portfolio inflow (FPI) reversal, which remains a real threat to the Nigerian capital market”.
Oil prices pared early losses on Wednesday but remained under pressure after the World Bank cut its economic growth forecast, doing little to end a rout that saw prices touch their lowest in nearly six years in the previous session.
Oil and other commodities came under strain after the weaker outlook from the Washington-based financial institution reinforced worries about a gloomy economic outlook at a time when oil markets are plagued by oversupply.
February Brent crude inched 12 cents higher to $46.71 a barrel by 1152 GMT, while West Texas Intermediate crude for February fell 6 cents to $45.83.
Oil prices that have fallen by about 60 percent since June are wreaking havoc on economies that depend on the commodity.
As at Tuesday, Nigeria’s Eurobonds recorded increase in yields. For instance, yield on 5.125% $500 million July 2018 which is priced at $96.486 rose to 6.261% against 5.375% at time of issue.
Also, yield on 6.75% $500 million January 2021 which is priced at $96.951 rose to 7.384% against 7% yield at time of issue; while 6.375% $500 million July 2023 priced at $92.318 recorded increase in yield to 7.620% from 6.625%.
“The outcome of the elections is clouded by too many uncertainties to make a call,” according to research analysts at CardinalStone.
