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Last week the Debt Management office (DMO) announced that the nation’s total debt rose 9.1 percent to N24.39 trillion as the agency released the borrowing calendar for the second quarter of 2019.
DMO unveiled the 2019 borrowing plan of the federal government to strike a balance in its debt sourcing in a bid to achieve 60 to 40 domestic to foreign debt stock.
The decision was in line with hitherto stated objective of rebalancing towards cheaper external debt in order to create more space for private sector in the domestic market, extend the average tenor of the debt stock in order to reduce refinancing risk and increase External Reserves.
Experts who weighed on the possible outcomes for investors in the local debt market, in particular how yields would be impacted say the revenue pressure government remains crucial for players in the market. According to Ayodele Akinwunmi, Head of Research and Strategy at FSDH Merchant Bank Limited, there are lot of factors that affect the yield and depending on the absolute amount the government might borrow this year, yields could still go either way.
However he believes the new minimum wage law and petroleum subsidy are factors that would worsen the fiscal deficit especially as he estimates the global economy slowdown and other crucial domestic factors to weigh on the revenue generation of the federal government.
Nnamdi Olisaeloka, fixed income analyst at Zedcrest Capital, explained that the government are basically repeating what they had done last year and it has been in line with the market expectation as the information has already been stated in the 2019 proposed budget released in 2018.
‘’ The crucial question is what would be the borrowing appetite of the government and how strong the DMO is going to be’’ Olisaeloka explained that the concern going forward is if the debt management agency would have to clear the auction at market rates or subsidize rates.
Olisaeloka noted that the fiscal pressure on the government would be a key consideration of investors in the market and upside risks.
Analysts at Chapel Hill Denham believe ‘’ The increasing odds of lower supply of bonds in Q2-2019 will likely fuel further bullish positioning in the sessions ahead.’’
At the end of trading on Friday, analysts at Chapel Hill Denham reported that sentiments were bullish in the fixed income market in reaction to the publication of the DMO bond auction calendar for Q2-2019.
The DMO bond auction calendar showed the FGN is looking to raise N255.0bn – N345.0bn in Q2-2019 which is lower than N388.9bn raised in Q1.
In addition, the DMO is looking to extend maturity profile of domestic debt by introducing a 30-year bond for the first time.
SEGUN ADAMS
