2016 budget funding: FG to raise additional N110bn bond next week

The Federal Government will raise N110 billion from its bonds issuance next week in continuation of its 2016 budget funding strategy. The Debt Management Office, DMO, which is spear-heading this option, gave the breakdown of the latest bond roll-out as N40 billion bond maturing in 2036, N30 billion maturing in 2026 and N40 billion of debt maturing in 2021. The trade would be conducted using the dutch auction system. The latest bond issue would be coming as the government steps up measures to raise $1 billion, about N315 billion, from the international market to also support its borrowings for 2016 budget funding plan. Cumulatively, the government plans to raise over N900 billion from the local bonds market this year to bridge the revenue gap and the deficit of N2.2 trillion in the 2016 budget. The bonds are also coming at a time activities in the local bonds market have been subdued, following a crowding out effect of the recent increases in yields in fixed income securities. This development, according to money market analysts, has forced average yield across benchmark bonds to decline last week by 0.2 per cent, while the general market outlook remained dull for three weeks now. However, Tiffany Odugwe, Senior Analyst at CardinalStone Partners, a Lagos-based investment house, told Vanguard: “There is a bond maturity of almost N600 billion expected to hit the system on the 16th of this month. “As a result, we expect to see some healthy participation in the bond auction next week. We expect yields to stop around current secondary market levels. According to analysts at Greenwich Trust Limited, another Lagos-based investment house, “trading activity in the bond market was muted as investors were attracted to the high yields on offer in the money market due to aggressive CBN intervention via Open Market Operations, OMO, and the Primary Market Auction, PMA. “We expect subdued appetite for FGN Bonds this week as investors lock in on the high yields on offer in the Treasury Bills market.” ‘’We also look ahead to the bond auction to be held on August 17 where the Debt Management Office, DMO, will auction 35- 45 billion worth of 14.5% FGN July 2021, 25-35 billion of 12.5% FGN January 2026 and 35-45 Billion of 12.4% FGN March 2036.”