Bond Auction: DMO Reduces Total Borrowing Plan for Q3:2020
Ms Patience Oniha, DMO Boss

Bond Auction: DMO Reduces Total Borrowing Plan for Q3:2020

The Debt Management Office, DMO, has indicated plan to lower borrowing target for the third quarter, (Q3:2020) as reflected in its bond auction calendar.

According to the auction calendar, DMO will be looking to raise ₦340 billion to ₦460 billion.

Analysts at Chapel Hill Denham explained that the upper band of the range is much lower than ₦667 billion raised in Q2-2020.

Bond Auction: DMO Reduces Total Borrowing Plan for Q3:2020
Ms Patience Oniha, DMO Boss

Meanwhile, in the fixed income market, the bullish momentum continued yesterday, after the DMO published the bond auction calendar.

At the front end of the curve, the Nigerian Treasury Bill benchmark curve compressed by 5 basis points (bps) to 2.09%.

This was due to interest in short (-4bps to 1.38%) and mid (-15 bps to 1.76%) day to maturity (DTMs), long DTMs were flat at 2.77%.

However, the Open Market Operations (OMO) benchmark curve expanded by 3bps to 5.49%, due to repricing of AUG-20 (+25bps to 4.0%).

Meanwhile other tenors closed flat. In the bond market, yields compressed by 4bps across benchmark tenors.

This was mainly driven by sustained interest at the short (-9bps to 3.55%) and long (-5bps to 9.91%) end of the curve, intermediate bonds closed flat at 7.31%.

At the rollover NTB auction yesterday, the CBN (on behalf of the DMO) offered ₦107.05 billion, but subscription level reached ₦189.14 billion.

This implies a bid-cover ratio of 1.8x.

Stop rates compressed by 21bps to an average of 2.15%, as the 91-day cleared at 1.30% (-49bps), 182-day at 1.80% (-11bps) and 364-day at 3.35% (-4bps).

The DMO allotted ₦107.05 billion, slit across 91-day (₦8.8bn), 182-day (₦26.6bn) and 364-day (₦71.6bn) tenors.

The DMO will be reopening three bonds – JAN 2026, MAR 2035 and MAR 2050.

Also, a new 25-year benchmark (the JUL 2045) will be introduced at the first auction of the quarter holding next week.

“The DMO has taken full advantage of the strong demand for government securities at the start of the year to front load domestic issuances”, Chapel Hill Denham stated.

“By our estimate, the outstanding net domestic issuance for the year is ₦1.2 trillion, which could be easily absorbed without forcing a market repricing of interest rates,

“…given the large amount of OMO maturities in the second half of 2020 totaled ₦6.4 trillion as well as bond coupon payments of about ₦550 billion between July and October”, analysts explained.

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Bond Auction: DMO Reduces Total Borrowing Plan for Q3:2020

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