IN the last seven months of 2020, the Debt Management Office (DMO) has raised a total of N1.49trillion from bond sales, according FBNQuest.

However, the investment banking and research company added that a repayment on maturity of about N600billion in February against these gross proceeds should be set aside.

FBNQuest Research in a fresh report released on Friday noted that the DMO should be pleased with the outcome of last week’s FGN bond auction, when it launched a new 25-year benchmark alongside three re-openings.

Specifically, it offered N130billion across the four instruments, raised N177billion (US$460million) and attracted a total bid of N470billion.

Comparable marginal rates according to FBNQuest, were 150basis points (bps) (Mar ‘35s) and 220bps (Mar ‘50s) lower than in June, so the DMO has again reduced the FGN’s borrowing costs with a successful auction.

“Its funding target for 2020 was more than doubled to N1.60trillion, which is to be fully raised in the domestic market.

“When we add receipts from non-competitive bids from public agencies, the DMO has raised N1.49trillion from bond sales in seven months this year. However, we should set a repayment on maturity of about N600billion in February against these gross proceeds,” the report read in part.

The firm further stated that the federal finance ministry and budget office do not share their interest rate assumptions but is confident, given the direction of rates on NTBs (Nigerian T-bills) and the FGN bonds, that they will see welcome savings on the N1.87trillion projection for domestic debt service in the revised 2020 budget.

Market liquidity was enhanced by an inflow from Federation Account Allocation Committee (FAAC) on Monday.

“We also understand that some investors revised their bids once they sensed the scale of demand at the auction. This begs the question how far the compression of yields will continue.

“There is surely a point at which the PFAs and other cash-rich investors start to look elsewhere. Our hunch is that that point is not far off, and that we will then see some modest retracement.

“On seven months’ performance, we feel that the DMO is well placed to meet its target for the year and build an additional cushion for itself,” it added.

Meanwhile, last week’s trade ended edgy as market participants were very jittery with their quotes as all eyes remained fixed on the DMO’s monthly bond auction.

Yields continued to drop across the benchmark curve as the market priced in expectations for lower stop rates due to perceived heavy demand at the auction.

The 2049s and 2050s papers moved the most intraday, with offers dropping as much as 45bps on the average even crossing below the 10.00per cent mark. By and large, yields compressed by 17bps to end the session.

At the primary auction, heavy demand for bonds enabled the DMO to significantly drop stop rates by an average of 190bps across the offered tenors, the second single highest jump seen this year. With an average bid-to-cover ratio of 3.62X, the DMO comfortably issued a total of N177 billion across the four offered tenors, including the new 2045s paper.

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