DMO targets a little higher in the circumstances

The Debit Management Office(DMO) holds its next monthly auction of FGN bonds yesterday and seeks to raise  $410 million. 

This would fall within the range of between N55 billion and N85 billion set in its provisional issuance calendar for Q2 2015.

The DMO's range is generally wide, and we should not be surprised that it has pitched its target towards the upper end, given the uncertainty surrounding the fiscal direction of the new administration. 

The offering of five, ten and 20-year paper is unchanged from the four previous months. 

Additionally, the DMO looks to raise N11.6 billion from the sale of the ten-year benchmark on a non-competitive basis.The front-loading of issuance in the first half is an established trend. The DMO raised N370 billion (gross) in January-May whereas the FGN’s 2015 budget proposals project new borrowing in the full year of N624 billion.

The total bid picked up to comfortable levels above N180 billion in both April and May. The auctions are normally held in the third week of the calendar month, and so should benefit from the boost to liquidity provided by the FAAC distribution, which is generally announced on the second Friday.

The offshore participation next week is likely to be marginal, at best. The liquidity constraints forming the basis of JP Morgan’s “threat” to delist Nigeria from its local currency government bond indices are a powerful disincentive. The auction should show the continuing appetite of the PFAs for the 20-year benchmark.