Analysts predict increased buying pressure for next govt bond
The Federal Government of Nigeria bond that will be auctioned on March 21, 2018 through the Debt Management Office, will see huge buying pressure from investors given current local market realities, some analysts have said.
A new seven-year instrument, FGN March 2025, valued within the range of N35bn and N45bn will be auctioned. Also, there will be a bond reopening of the FGN July 2021 (five years) and the FGN Feb 2028 (10 years) at an estimated range of N90bn and N110bn.
The highlights are: 14.50 per cent FGN July 2021 (five-year re-opening instrument); FGN March 2025 (seven-year new instrument), and 13.90 per cent FGN Feb 2028 (10-year re-opening instrument).
Bullish sentiment had characterised the Treasury bonds space since the last auction held on February 21. Yield declines were recorded on all instruments, save for the Jan-2022 (+0.06 per cent) and July-2034 (+0.03 per cent) instruments. Consequently, the average bond yield declined by 0.28 per cent to close at 13.53 per cent on March 15, 2018. The most attractive instrument was the Feb-2020 (-0.65 per cent), excluding the May-2018 whose yield decline is expected as the bond nears its maturity date.
System liquidity also buoyed with series of Open Market Operation and Treasury bills auctions by the Central Bank of Nigeria of an amount over N1.20tn and N305.33bn, respectively.
The Monetary Policy Committee is yet to hold its first meeting in 2018, due to its inability to form a quorum. However, with the National Assembly already in the process of accrediting the selected members, the CBN governor has communicated that the next MPC meeting should hold in the first week of April at the latest.
“We retain our view that this, alongside the healthy macro-economic wellbeing of the country such as the Consumer Price Index rate down by 80bps in February, will incite a rate cut by the MPC in the first half of the year. We therefore expect the increased appetite for debt instruments to drive the yields on most bonds down as they recorded price gains,” analysts at Meristem said on Friday.
At the last auction, the new 10-year instrument was issued at a discount rate of 13.98 per cent, which was in line with our projected range of 13.50 per cent and 14 per cent. At this auction, a new seven-year instrument will be issued.
“We expect the demand on the new instrument to be in line with the last auction. Also, given the 55 per cent reduction in the auction amount in the Q2:2018 T-bills auction, we envisage increased buying pressures within the bond space.
Consequently, we envisage that this instrument will be issued at a coupon in the range of 13.50 and 13.80 per cent,” the analysts added.