DMO Hits 70% of Local Borrowing Target in 7-Month
The Debt Management Office (DMO) has raised cumulative sum of N4.3 trillion from the local debt capital market since the beginning of the year to date. This translates to 70% of its local borrowing target for the year from debt market.
DMO has been raising funds from debt investors by selling Federal Government of Nigeria bonds to support 2024 budget deficit.
The authority has planned to raise funds in the international market, however, elevated rate appeared to be an impediment amidst elevated interest payment on public debt.
Its latest monthly auction was undersubscribed as investors continue to channel funds to where it is treated well. Some Nigerian banks’ capital raise have been noted to be one of the reason the DMO auction subscription level was weak.
The DMO held its monthly auction of FGN Bonds on 22, July 2024. It offered N300 billion but raised N225.7 billion through re-openings of the 19.30% FGN APR 2029, 18.50% FGN FEB 2031 and 19.89% FGN MAY 2033.
The bids were allotted at marginal rates of 19.89% for 5-year bond, slightly higher than 19.64% at the previous month auction.
7-Year FGN bond was sold at the rate of 21% from 20.19% in the June auction while 10-Year bond was sold at the spot rate of 21.98% versus 21.5% previously offered.
Demand at this auction was lower at N279.7 billion, compared with N305.3 billion in June, according to Coronation Research note, with the bid-to-cover ratio stood at 1.24x.
At the July auction sales, the demand for the 10-year bond was bullish, with N100 billion offered, and N200.65 billion allotted. This can be partly attributed to expectations of near-time moderation in headline inflation.
Domestic institutions remained the core participants at the FGN bond auction, Coronation Research said in its note. Citing the National Pension Commission (PENCOM) report, analysts noted that FGN bonds held by pension fund administrators increased by +25.6% year on year to N20.2 trillion vs N16.1 trillion recorded in the corresponding period of 2023.
The PENCOM report shows that FGN bonds accounted for 60% of total assets under management (AUM) in May ’24. At the July Monetary Policy Committee (MPC) meeting, the benchmark policy rate was hiked by +50bps to 26.75%.
This was in line with our expectation. The real interest rate gap is now -7.4%, compared with the previous -7.9%.
“Based on our estimates, the DMO has raised cumulative c. N4.3 trillion year to date via FGN bond issuances, reaching 70% of the 2024 total domestic borrowing target of N6.1 trillion”.
Given expectations of increased domestic borrowing in 2024, the DMO is likely to exceed its borrowing target, potentially leading to sustained upward trend in fixed income yields, Coronation Research said. #DMO Hits 70% of Local Borrowing Target in 7-Month
