The Debt Management Office (DMO) held its regular monthly debt auction last Wednesday, raising N70billion (US$440million) from a total bid of N132billion. (It raised an additional N85billion from the sale of FGN bonds outside the auction on a non-competitive basis.)
It reopened two liquid issues familiar to investors (Apr ‘17s and Jan ‘22s). The marginal rates (effective cut-off points) were modestly higher than at the previous auction, while the total bid proved the lowest in four months. We detect a cooling of interest among offshore investors.
Sales by the DMO were the lowest in the quarter, which may reflect the fact that the 2013 budget has been approved. Two figures in the budget of particular interest to investors are net annual domestic borrowing of N528billion, compared with an earlier proposal of N727billion, and the federal deficit of N887billion. Both projections, together with the proposed N100bn sinking fund, should comfort existing investors.
The DMO’s calendar for Q2 2013 should announce a slowdown in issuance, given that it raised N215billion (gross) in the first two auctions of the year.
The market was boosted by Nigeria’s inclusion in the JP Morgan local currency government bond index in October. From this month it has been added to the similar but far smaller index of Barclays with a 0.8 percent weighting.
The party for FI investors in Nigeria is almost over in our view but they could enjoy a further 100bps in yield compression by the end of H1 2013 on falling headline inflation.