CBN Headquarters
Eromosele Abiodun
The inclusion of the Federal Government of Nigeria bond in the JP Morgan government bond index has continued to attract investors to Nigeria, fuelling massive bids for the government’s debt instruments.
At its bi-monthly auction of the Nigerian Treasury Bills (NTBs) last week, the Central Bank of Nigeria (CBN) raised N172 billion ($1.10bn).
The total bid soared to N356 billion ($2.28bn) from N238 billion two weeks previously, while the marginal rates (effectively cut-off points) were 30 bps higher for all three instruments, (91-day, 182-day and one-year paper).
Also, the CBN also showed the true yields, which ranged from 13.4 per cent for the 91-day bill through to 15.5 per cent for the one-year NTB.
Experts at FBN Capital believe the Federal Government’s plan to launch a sinking fund in 2013 for the retirement of some bonds was another factor responsible for the massive interest in NTBs.
“The government also intends to borrow externally and thus trim its naira borrowing requirement. These plans are subject to the negotiations on the new budget with the National Assembly, which sadly (but predictably) opened on Wednesday on a fractious note.”
The experts added that the size of the total bid suggest that the monetary tightening by the CBN has not shut the banks out of the auctions, “Although it has had the desired effect of underpinning the naira exchange rate.”
They added that the firmness of the currency last week indicated purchases by investors chasing yield in the local debt markets.
The purchases, they added, appear to include new entrants to the market who have been alerted to Nigeria on their radar screen following its inclusion in the JP Morgan government bond index.
“Sales of NTBs are an exercise in monetary management rather than a contribution to deficit financing. The CBN has raised N172 billion from the auction but repaid the same amount on maturing bills. Its calendar for Q4 showed N855 billion in maturities and issuance of N863 billion.
“Our expectation is still that yields on FGN debt will move within a range in the days ahead. Thereafter, we still see some legs to the rally in the bond market on the basis of the JPM factor as well as improved inflation prospects,” they noted.