‘FGN’s huge N5.6trn 2021 budget deficit financing pushing up bond yields’

The Federal Government of Nigeria (FGN’s) huge deficit financing requirement of N5.6 trillion in the 2021 budget (before the passage of the supplementary by the National Assembly), has contributed to pushing up bond yields, according to FBNQuest Research.

Experts describe bond yield as the amount of return an investor will realise on a bond, calculated by dividing its face value by the amount of interest it pays.

According to FBNQuest Research, FGN bonds accounted for 60.3 per cent of total Assets Under Management (AUM) at end-September, up from 57.4 per cent in the year earlier period.

“We do not see this trend changing soon considering the FGN’s FY 2022’s proposed deficit of NGN6.3 trillion, of which NGN2.51 trillion has been set as the domestic borrowing target,” the firm stated in a note over the weekend.                                                                                                     PenCom’s latest monthly report shows that AUM rose by 0.8 per cent in monthly comparison (m/m) and 12.4 per cent year on year ( y/y) to N13 trillion (USD31.3 billion) as at end-September.

FGN debt securities declined by -0.8 per cent m/m to account for 63 per cent of the total.

“When we include corporate and state government issuance, the fixed-income exposure is equivalent to 71.4 per cent of the industry’s AUM at end-September.

“For Kenya, the Retirement Benefits Authority puts the share of government securities at 44.1 per cent at end-June ‘21 and listed equities at 16.9 per cent,” the firm compared.

According to FBNQuest for Nigerian pension funds, the share of domestic equities rose slightly from 5.1 per cent to 6.7 per cent over the 12 months, and members’ holdings by 49 per cent to N874 billion.

The all-share index (ASI) rose by 50 per cent over the same period, implying a modest shift by the Pension Fund Administrators (PFAs) into domestic equities.

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