Investor appetite as solid as ever, says FBN Capital            

The Debt Management Office (DMO) held its seventh monthly auction of FGN bonds of the year, last week, and raised N100 billion (about $620m) from the sale of three debt instruments.

These were two reopened issues (13.05% August ‘16s and 14.20% March ‘24s) as well as a new long bond, the July ‘34s, for which the coupon has been set at 12.15 percent, in line with the marginal rate (effective cut-off point).

The rates for the existing issues narrowed by 36bps and 6bps from the previous month to 11 percent for the ‘16s and 12.19 percent for the ‘24s.

The total bid of N264 billion was the highest at auction for at least four years.

Pent-up demand from the Pension Fund Administrators (PFAs) for the long bond, which was pulled from the DMO’s original calendar for second-quarter (Q2) 2014, would have been a contributory factor.

There has been a high level of liquidity in the market in recent weeks.

The last two auctions of Nigerian Treasury Bills (NTBs) by the Central Bank of Nigeria (CBN) on June 25 and July 9, attracted total bids of N314 billion and (when it did not offer the popular 364-day paper) N103 billion, respectively.

Yields have dropped due to a slowdown in Open Market Operations (OMOs) by the CBN as well as expectations of Federation Account Allocation Committee’s (FAAC) inflows.

The auction dominated the market last week as both domestic and offshore players adopted a wait-and-see approach before Wednesday.

The most actively traded bonds last week were the August ‘16s and the March ‘24s.

We see yields within the current range of 11 percent to 12.50 percent over the next few weeks.

We are near the point at which multi-asset investors find greater value in local equities and the offshore community turns to other frontier markets, particularly if they have pre-election fears for the naira exchange rate.