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Debt Securities

FEC approves new Debt Management strategy for 2020–2023

The FEC has approved a new Medium Term Debt Management Strategy (MTDS) for Nigeria.

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Debt Management Office resumes FGN savings bond offer on August 10, Eurobonds, Patience Oniha, DMO, External debt servicing

The Federal Government has indicated it is looking inward as far as debt is concerned.

This point was unscored in the approval of the medium term Debt Management Strategy for the period 2020-2023 as disclosed by the Debt Management Office (DMO) in a statement issued on Wednesday after the FEC held its meeting in Abuja.

The MTDS  policy as a document tries to articulate the debt mix of the government considering the cost and risk trade-offs that best suit the country’s broader macroeconomic and public debt management

READ: Investors scramble for DMO sovereign sukuk as it records 446% oversubscription

It stated, “The MTDS, 2020-2023 has been prepared by the DMO, in collaboration with Federal Ministry of Finance, Budget and National Planning and the Central Bank of Nigeria.

“Other collaborating stakeholders are the Budget Office of the Federation, National Bureau of Statistics and the Office of the Accountant-General of the Federation.”

READ: Nigeria’s high recurrent costs, low revenue and escalating debt numbers

What has changed

With the new strategy, a larger proportion of new borrowing will be from domestic sources using long-term instruments while for External Borrowing, concessional funding from multilateral and bilateral sources will be prioritised.

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Also, the target of fiscal sustainability has been increased from 25% (MTDS, 2016-2019) to 40% in the new strategy.

In simple language, the government wants to increase borrowing from 25% of GDP to 40%. While this will provide investment outlets to investors and mop up cash and calm inflation rate, it will also put a lot of pressure on the domestic debt market, interest rate and liquidity.

READ: Mining Cadestre Office (MCO) generates revenue of N2.303 billion in 2020

The target, according to DMO, was increased to accommodate new borrowings to fund Budget Deficits and other obligations of Government; Promissory Notes to be issued to settle Government Arrears; and, the Ways and Means Advance at the Central Bank of Nigeria.

DMO added that the strategy would sustain the issuance of longer-tenored instruments with tenors of 10 years and above, in order to effectively manage Refinancing Risks.

Why it matters

The new debt policy has to be reworked in light of the current global pandemic, reduced revenue from shock and volatility in the oil market. The public works in the budget will be funded, indicating there is a low likelihood of project abandonment.

Government appetite for debt seems to have found some cover or justification from the assertion by DMO that Nigeria is still well below the threshold 55% for countries in Nigeria’s peer group, but massing debt could constraint government flexibility in public finance in the coming years and reduce monetary policy tool available to CBN.

Jaiz bank

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Debt Securities

DMO announces May 2021 FGN savings bond offer for subscription

The DMO has announced the offer for subscription of the May 2021 Federal Government Savings Bond to investors.

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The Debt Management Office (DMO), on behalf of the Federal Government has announced the offer for subscription of the May 2021 Federal Government Savings Bond to investors.

This disclosure is contained in a circular issued by the DMO on May 3, 2021, and can be seen on its website noting that there are 2-year and 3-year savings bonds.

A breakdown of the bonds shows that the 2-year FGN savings bond will be due on May 12, 2023, at 7.753% per annum and the 3-year FGN Savings Bond which will be due on May 12, 2024, at 8.753% per annum.

The offer has an opening date of May 3, with a closing date of May 7, while the settlement date is May 12, with the coupon payment dates as follows: August 12, November 12, February 12 and May 12.

The circular also states that the unit of sale is N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50,000,000

It also states that the interest is payable quarterly with the redemption expected to be in bullet payment on the maturity date.

In case you missed it

It can be recalled that last month, the DMO on behalf of the Federal Government, offered for subscription April 2021, Federal Government Savings Bond to investors.

The offer consisted of a 2-Year FGN Savings Bond due April 14, 2023, at 5.522% per annum and a 3-year FGN Savings Bond due April 14, 2024, at 6.522% per annum.

The opening date was April 6, 2021, with the closing date on April 9, 2021, settlement date on April 14, 2021, and the coupon payment dates on July 14, October 14, January 14, and April 14.

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Debt Securities

CBN’s N88 billion treasury bill auction yesterday was oversubscribed by 174.62%

At the end of the auction, one-year treasury bills sold for 9.75% per annum.

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Some experts are uncertain of what to expect from money markets in H2 2020

The Central Bank of Nigeria’s (CBN) Treasury Bills Auction worth N88.46 billion was oversubscribed by 174.6% yesterday. The stop rates for the 91 and 182-day tenor bills fixed at 2.00% and 3.50% respectively.

The stop rate of the 364-day tenor bill was pegged at 9.75% according to the result of the NTB auction.

The apex bank recorded N242.94 billion in total subscription, as the treasury bill auction was oversubscribed by 174.62%, however, T-bills worth N88.46 billion were provided across the 91-day, 182-day and 364-day tenors at the primary auction.

At the end of the auction, bills worth about N129.46 billion were allotted to investors.

READ: CBN’s N154.38 billion T-bills auction over subscribed by 46% as rates fall marginally  

Demand for Treasury Bills Surge

Demand for Treasury Bills has surged in recent months as yield-hungry investors scamper away from equities into risk-free government securities. While 2020 was marred with ultra-low interest rates on fixed income securities like Treasury Bills, yields have spiked in recent weeks to the surprise of investors.

With inflation rate galloping past 18% the pressure to flee the naira appears to have forced the central bank to revise its monetary policy strategy, allowing rates to rise.

READ: CBN, First Bank on collision course over removal of MD/CEO

Summary of the NTB Auction today

The 91-day bill was undersubscribed by 7.51% as it received a subscription of N10.53 billion, against an initial offer of N11.39 billion.

The 182-day tenor bill on the other hand performed well, as it was oversubscribed by 50.87% with an impressive subscription of N9.05 billion which was received yesterday, against an offer of N223.35 billion.

The 364-day tenor bill recorded the highest subscription with an oversubscription rate of 214.25%, as investors’ total subscription was valued at N223.35 billion, relative to an initial offer of N71.07 billion.

READ: U.S Government makes a premium selling Bitcoin

The breakdown of the allotment

At the close of the auction yesterday, about N7.19 billion of the 91-day tenor bill was allotted, lower than the initial offer of N11.39 billion, while N6 billion worth of the 182-day bill was allotted to investors.

With the settlement for the bill pegged for the 29th of April 2021, about N116.27 billion of the 364-day tenor bill was also allotted to investors.

The oversubscribed bills confirm the huge demand for risk-free government securities amidst a dearth of sizeable investment funds.

Jaiz bank

READ: Bank of England considers digital currency

What you should know

  • The treasury bills were auctioned in a Dutch auction structure, as the price of the offerings were set after bids were received to determine the highest price at which the total offering could be sold.
  • This provided investors with the opportunity to place bids for the amount they were willing to buy in terms of quantity and price.
  • The range of bids was placed at 1.99 and 10.00 for the 91-day tenor; 3.49 and 10.00 for the 182-day tenor, 8.8943 and 15.00 for the 364-day tenor.

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