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FGN Bond: DMO Receives N4.2trn Bids in Five Years

 With a total bid of N70 billion every month for at least five years, amounting to N840 billion a year, the federal government of Nigeria may have received a total of N4.2 trillion in five years, THISDAY findings has revealed.

The Nigerian bond market has witnessed massive expansion in the past few years following huge interest from Pension Fund Administrators (PFAs) and a few offshore investors.

The Debt Management Office (DMO) holds its sixth monthly auction of FGN bonds of the year to day, and has an unchanged target of raising N70 billion ($430 million) from the sale of two staple reopened issues, the 13.05 per cent Aug ‘16s and the 14.20 per cent Mar ‘24s.

Data from DMO show that domestic issuance for the year is well advanced with the raising of N385 billion (gross) from the sale of FGN bonds in the first five months.

Experts say today’s auction is expected to attract a huge demand from the local institutions such as the PFAs as well as a few offshore investors.

The PFAs held bonds totalling N1.9 trillion at the end of March, equivalent to 45 per cent of their assets under management and 42 per cent of the outstanding stock of debt instruments.

Despite the expected demand, experts believe there is anecdotal evidence that the FGN has achieved some tightening of the fiscal stance in the form of a modest build-up in the balance on the excess crude account to around $4.1 billion as of mid-May.

“There has been a tightening of liquidity in recent weeks with the resumption of regular open market operations (OMOs) by the CBN. The total bid at its auction of NTBs on 04 June amounted to N304 billion, compared with N813 billion one month earlier.

The DMO’s remit is easier now that the National Assembly has approved the 2014 budget and the president has signed it off, “said analyst at FBN Capital.

While admitting that they do not yet know the approved financing gap for the 2014 budget, the experts said they are aware that the FGN plans to return to the international capital market to raise a further $1billion.

They added: "The DMO has set a medium-term target of a 60/40 mix for the domestic and external debt of the FGN. It has been driven by the rising cost of domestic debt service to N664 billion in the 2014 budget as well as the rate differential which favours foreign currency borrowing.

We do not share fears of a steep, Ghana-style rise in the FGN deficit ahead of the elections. Last time round, it rose from 3.2 per cent of GDP to 3.7 per cent in 2010, the last full year before the last polls."

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