The Debt Management Office (DMO) last week released its provisional issuance calendar for Q3 2014, and looks to raise between N255 billion ($1.57bn) and N315 billion ($1.94bn) from the sale of FGN bonds over the three monthly auctions.
It stresses the provisional nature of its calendars: that for Q2, originally proposed the issuance of a new 20-year instrument, subsequently withdrawn. The target for the Q3 is seasonally high, which can be explained in terms of the revisions to Q2’s calendar and of caution ahead of the elections due in February 2015.
The DMO routinely consults stakeholders on its calendar. It is again offering the existing three-year paper (13.05% August ‘16s) and 10-year instruments (14.20% March ‘24s) at all three auctions. Additionally, it is launching a new 20-year long bond in July, which it will reissue in the two following months.
In Q1, it raised N265 billion and in Q2 N200 billion. We do not expect any difficulties for the office in reaching its latest target, and suspect that issuance for the quarter will be towards the lower end of the range.
The total monthly bid averaged N195 billion in H1 2014. The long bond should prove popular with the PFAs, and domestic institutions generally have few alternative investments in the fixed income space. The offshore community enjoyed a good run earlier this year and tends now to be on the sidelines. It holds perhaps 15 percent of the stock of FGN bonds.
The CBN projects no new net issuance of NTBs in Q3.
The 2014 budget projects net borrowing of N572 billion, which will be predominantly domestic since the FGN has chosen not to tap the Eurobond markets this year. (It could be regretting this decision, having seen the success of Kenya’s debut on the market.)
The DMO has set a medium-term target of a 60/40 mix for the domestic and external obligations of the FGN. Its driver was the steep increase in domestic debt service, to N664 billion in this year’s budget. We estimate the blend at 87/13 in March.
We do not fear fiscal implosion ahead of the elections. It did not happen ahead of 2011, and we see no reason why it should occur this time.
