FG Plans N110bn Bond Auction This Month

The Federal Government, through the Debt Management Office, is scheduled to hold the last bond auction for the year on December 13, 2017. The amount on offer is expected to be within the range of N90Bn and N110Bn. Two instruments which are both re-opening, the FGN July-2021 (five-year) and the FGN March- 2027 (10-year), will be on offer at 14.50 per cent FGN July 2021 (five-year re-opening) N45Bn-N55Bn 16.2884 per cent FGN March-2027 (10-year re-opening) N45Bn-N55Bn.

The Treasury Bonds market has remained bullish since the last auction held on the November 22, as the average bond yield declined by 0.25 per cent to close at 14.70 per cent on December 7, 2017. However, investors’ appetite towards the FGN June-2019 and FGN October- 2019 instruments remained bearish, as they were the only instruments to record yield advancements of 0.20 per cent and 0.04 per cent, respectively.

During the same period, the National Bureau of Statistics released the third quarter 2017 Gross Domestic Product result, which showed improved economic growth of 1.40 per cent, driven by increase in crude Oil price and production.

“We note that this growth, coupled with improvements in other macroeconomic variables, has strengthened investor confidence, evidenced in the increased participation in the domestic market,” analysts at Meristem Securities said on Friday.

On December 5, the House of Representatives passed the revised Medium Term Expenditure Framework with an increase in the Oil benchmark from $45 to $47 per barrel and adopted the projected non-oil revenue of N5.279Tn. The MTEF provides a long-term view of the Federal Government’s objectives and ensures all plans and policies are in line with the long-term goals of the Government.

This move, according to the analysts, will further improve investor confidence and participation in the Nigerian economy. Since the absence of the 20-year bond at the primary auctions, the 10-year bond has received significant participation, causing a moderation in the marginal rates across tenors. Given the current liquidity levels in the market, driven by persistent Open Market Operation auctions and Foreign Exchange supply, we expect yields to remain around the same levels at this auction.

On Thursday, activities in the Treasury Bills space, remained largely bullish, as the average T-bills yield declined further by 0.63 per cent to close at 16.23 per cent, reaching an eight-month low.

The yields on the one-month, three-month, six-month, nine-month and 12-month  instruments recorded respective declines of 0.08 per cent, 0.43 per cent , 0.41 per cent, 1.41 per cent and 0.84 per cent. The open buyback and overnight rates declined to 6.33 per cent and 7.33 per cent, respectively. Thus, the average money market rate slipped further by 7.50 per cent to settle at 6.83 per cent.

In the same vein, buy pressures were witnessed in the secondary market for Treasury bonds. The yield on nine tenors recorded declines, while other instruments traded flat. Consequently, the average bond yield settled at 14.70 per cent, representing a further decline of 0.06 per cent from the previous trading day.


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