The DMO held its latest monthly auction of FGN bonds last week, and raised N100 billion ($610m) from the sale of three debt instruments.
These were all reopened issues (13.05% August ‘16s, 14.20% March ‘24s and 12.15% July ‘34s). The direction of the marginal rates (effective cut-off points) was mixed: a widening of 37bps and 1bp on the August ‘16s and the March ‘24s, which are now included in the JP Morgan local currency indices for emerging market government bonds, and a narrowing of 9bps on the July ‘34s.
The total bid of N174 billion was little changed from the figure of N174 billion the previous month and much reduced from July’s exceptionally high N264 billion, which can be traced to pent-up demand from the PFAs for a newly issued long bond.
The issuance range of up to N315 billion in the calendar for Q3 was higher than we would have liked on macro grounds yet has to be seen as a pragmatic statement ahead of the forthcoming elections.
The DMO has raised an estimated N8 billion this quarter from the sale of FGN bonds to offshore investors in the form of global depository notes (GDNs). It had initially aimed to raise N80 billion from such sales.
We see yields within the range of 11.25 percent to 12.50 percent over the next few weeks. FGN bonds are the second highest yielding assets (after Brazilian paper) in the JP Morgan indices although we can see periodic selling pressure on concerns related to tapering in the US.
