Although the Federal Government of Nigeria (FGN) bonds are not the only game in town but they dominate the fixed-income space with a combined market capitalization of N11.75 trillion, according to FMDQ data.
This is compared with N170 billion for state government issuance, N300 billion for commercial paper and N680 billion for corporate bonds.
Market capitalization is the most recent market value of a company’s outstanding shares.
In the case of government bonds, it is the aggregate valuation of the government’s current bond price and the total number of outstanding instruments.
According to FBNQuest Capital Research, the last category (corporate bonds) registered strong growth in 2020, thanks to issuance from two household names in cement, one of which smartly raised N115 billion for seven years in December with an annual coupon of just 7.50 per cent.
Given this prevalence of FGN bonds, research analysts at FBNQuest an arm of FBN Holdings said it is not a surprise that they accounted for 60 per cent of the assets under management of the Pension Fund Administrators (PFAs) in end-April. They offer maturities up to 30 years, which is another selling point for the pension funds for matching purposes.
Meanwhile, the Debt Management Office (DMO) held its monthly auction of FGN bonds last week.
It offered its regular N150 billion, raised N138 billion ($340 million) and secured a total bid of N286 billion, according to dealers. The DMO offered 10, 20 and 30-year benchmarks, all different re-issues and the set menu through the third quarter (Q3) 2021 per its calendar. There are, therefore, no exact parallels with the marginal rates of the previous month.
However, the trend remains downward and a conventional yield curve across the three debt instruments has been maintained. The firm noted that the bid was softer this month yet covered sales by a factor of two-to-one, adding that Monday’s auction was another creditable effort by the DMO.
It has an onerous domestic funding target of N2.34 trillion towards the projected deficit of N5.60 trillion in the FGN’s 2021 budget.
By way of context, “we recall that it collected a total of N1.66 trillion (gross) from FGN bond sales in 2020.
“Ytd, the DMO has now raised NGN1.66 trillion at its bond auctions including non-competitive sales to public agencies,” the research analysts observed in a note to clients.
This cumulative figure is gross, (ie before) the repayment of bonds on maturity.
According to them, when the relatively small amounts it generates from the sale of other debt instruments such as Sukuk are included, DMO is clearly on track pro-rata to meet the target for 2021.
“Foreign portfolio investors (FPIs) appear to have sat on the sidelines. “Quite apart from the matter of the pipeline (whatever its size), they have the luxury of less complicated trades with similar (or better) returns elsewhere,” it stated.
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