The Debt Management Office (DMO) had a more successful outing at its most recent primary auction of FGN Bonds conducted this Monday compared with its last auction in October. The agency offered its usual NGN225bn worth of FGN paper split equally across the Apr ’29, Apr ‘32, and Apr ’37 maturities. It ended up raising NGN269bn, or around 1.2x the amount on offer. The total subscriptions amounted to NGN344bn, almost 3x the subscription level for the previous month, suggesting renewed investor interest in the auction, and a bid-to-cover ratio of 1.3x. The longer tenor benchmark, the Apr '37, saw the most demand, as evidenced by its higher subscription and sale levels of NGN270bn and NGN217bn respectively.
The stop rates for the benchmarks on offer were 14.75%, 15.2%, and 16.2% for the Apr ’29, Apr ’32, and Apr ’37 benchmarks respectively.
The marginal rates were between 20bps to 25bps higher than rates at the October auction, a reflection of the high yield environment. They were also around 8bps, 55bps, and 7bps higher than those on the secondary market.
The DMO has now raised around NGN2.5trn from its auctions this year. The gross amount is roughly NGN2.8trn when non-competitive allotments are considered. However, this amount excludes smaller sums from sukuks and FGN savings bonds.
If we consider the net T-bills issuance of almost NGN1trn, the DMO has comfortably met its domestic funding target for the year.
Regardless, we do not see the agency slowing down on its pace of issuance in December due to the underperformance with external debt issuance this year.
The country’s stock of external debt increased by just USD1.6bn over H1 2022, due to tight financial market conditions globally. This falls far below the total external borrowings of USD6.3bn envisaged in the 2022 budget.
Going forward, we expect yields to remain elevated in the near term due to tight liquidity conditions in the market, the hawkish posture of the monetary authorities, and the DMO’s ready supply of FGN paper.