The Debt Management Office (DMO) is to hold its next monthly auction of FGN bonds on 17 April, and is looking to raise N104.8billion ($670million). Its menu is familiar enough from recent months: the Jun ‘19s and Jan ‘22s, along with the Jul ‘30s.
The DMO tentatively offered Nigeria’s long bond in February to raise just N15billion and may have been surprised by the bid of N79billion for the paper. Next week it is offering N35billion.
The total sales target is higher than perhaps we would like, given that the DMO has raised N285billion (gross) in just three months and that the approved 2013 budget sets domestic borrowing (net) at N577billion.
The auctions in the past year have generated demand comfortably above projected sales, a rare exception being September. Many offshore investors may favour the longer dated Nigerian Treasury Bills (NTBs) but few, if any liquid government bond markets match the yields available in Nigeria. Also, the shift by domestic institutional investors from bonds to equities has not been dramatic.
Our view remains that the market rally since August 2012 driven by tight monetary policy and the JP Morgan factor is not exhausted, and that yields on the more liquid FGN bonds may narrow by 100 basis points (bps) in first-half (H1) 2013.
Market participants will be aware that AMCON has refinancing needs of N1.7trillion at face value in December 2013, and may be looking to place some of its FGN-guaranteed issuance in local debt markets