CBN Governor, Sanusi Lamido Sanusi
The inclusion of the Federal Government of Nigeria bond in the JP Morgan government bond index has continued to attract investors to Nigeria, as the fixed-income market again last week witnessed strong offshore investor demand.
At the Central Bank of Nigeria (CBN) auction of the Nigerian Treasury Bills (NTBs) last week, the paper attracted bids of N356 billion ($2.27 billion) for the offer of N117 billion, in the face of strong offshore demand.
Also, at the monthly auction of FGN bonds during the week under review, bids totalling N121billion ($770 million) comfortably exceeded the Debt Management Office, DMO’s offer of N50 billion.
Marginal rates on the June ‘19s and January ‘22s narrowed by 125bps and 149bps from the previous month, to 12.49 per cent and 12.01 per cent. These are the cut-off points in the auction, and 10bps and 70bps tighter than the yields on the secondary market last Friday.
Experts believed the underlying trends, however, told the same story-that monetary policy was supportive, and inflation prospects were good in the New Year.
According to experts at FBN Capital, strong offshore demand for these issues helped to explain the appreciation of the naira on the interbank market last week.
In a related development, the financial advisors to the Lagos State Government, Chapel Hill have indicated that the state’s N80 billion bond issue would be oversubscribed. Lagos State is raising N80 billion from the sale of seven-year paper.
The state’s issue, unlike those of other states, does not depend on an irrevocable standing order payment signed by the federal finance minister.
Experts at FBN Capital believed the FGN’s plan to launch a sinking fund in 2013 for the retirement of some bonds is 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, appeared 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.