More work for the Debt Management Office at auction

The Debt Mangement Office (DMO) looks to raise 135 billion naira from next week’s monthly auction of federal government bonds, and is offering the same five, ten, and 20-year benchmarks as in the past four months. Its record has been exemplary this year, having raised  960 billion naira in seven months towards the target for net domestic financing in the 2017 budget of 1.25 trillion. 

By FBN Qest
We might think that the DMO will, therefore, halt its auctions towards the end of the year. Far from it, it is preparing itself for some bond maturities and has to keep an eye on progress with external financing of the projected deficit of 2.36 trillion naira.
We understand that the Eurobond sales of $1.5 billion in the first quarter are considered financing of the 2016 budget deficit. The treatment of the $300 million diaspora bond sales is unclear so it may be that external financing of the 2017 deficit is currently nil.
The total bid has trended downwards this year. July’s of 129 billion naira was less than the offer of 135 billion naira. The shortfall was limited to the Jul ‘21s. for which the DMO offered .35 billion naira and the bid was just 9 billion.
It will be watching out for the broader market impact of the FGN’s proposal to refinance maturing NTBs with USD-denominated instruments of up to three years’ tenor. If approved, the restructuring would be subject to a ceiling of US$3bn. It would also have a fairly rapid impact, given the tenor of the debt instruments being refinanced (NTBs). Taken in isolation, the tightening of the supply of NGN-denominated paper should bring downward pressure on yields. The stock of NTBs at end-March was the equivalent of $11.8bn.
The DMO will be hoping, having increased its rates, to step up its sales of the two and three-year FGN savings bonds. Its allotment in the August issue was just N740m, and the average successful application 960, 000 naira.