DMO sets surprises in Q2’21 bond issuance calendar

Nigeria's Debt Management Office (DMO) has unveiled some unexpected moves in its second quarter bond issuance calendar, revealing an increase in the amount on offer by 15 billion naira per month. Traders at UBA have noted that the weak signals from this released bond issuance calendar are likely to fuel negative sentiments in the bond markets. Dumebi Udegbunam, a Fixed Income Trader at UBA, provided insights during a recent interview with CNBC Africa regarding the implications of these developments. The bond issuance calendar for the second quarter showcased a surge in offers across all maturities, with a notable anomaly in May where the 2045 bond was replaced by the 2049 bond, only to revert back to the 2027, 2035, and 2045 bonds by June. Udegbunam emphasized that this increase in offers aligns with the DMO's strategy to raise more funds to support the budget. With a budget deficit of 5.1 trillion naira, of which 2.14 trillion naira will be covered by domestic borrowing, the decision to boost bond offers reflects the government's efforts to bridge the funding gap. Despite the government's move to borrow more from the market, Udegbunam pointed out that the sentiment in the secondary market is negative. Anticipated higher yields in upcoming auctions during April, May, and June have led to bearish sentiments, particularly on long-tenor bonds where yields have surged. The 2045 bond, for instance, saw its yield jump from 12% in the last auction to around 3.5% in the current market, representing a significant increase that has prompted market participants to prepare for elevated yields. In addition to the bond market dynamics, Udegbunam highlighted the impact of tight system liquidity on treasury bills. A recent decline of approximately 300 billion naira in system liquidity, attributed to NDIC and CBN interventions, has tightened liquidity conditions. April is expected to witness further liquidity constraints, with fewer treasury bills on offer compared to the previous month, putting pressure on market participants to manage liquidity shortages effectively. The discussion also touched on Nigeria's engagement in the international markets, particularly in Europe with the issuance of Eurobonds. Udegbunam emphasized the need for competitive rates to attract capital inflows, especially amid dwindling foreign investments. He underscored the importance of adopting strategies to enhance Nigeria's attractiveness to foreign investors and stimulate capital inflows, citing the current global economic climate as a crucial factor shaping investor decisions. Regarding inflation, Udegbunam acknowledged the recent uptick, with headline inflation reaching a three-month high of 17.33%. Food inflation has also surged by about 20%, driven by factors such as market disruptions and the rise in fuel prices. While projecting inflation to hover around 18%, Udegbunam stressed the imperative of aligning fiscal and monetary policies to address economic challenges effectively. He recommended a coordinated approach between the two policies to promote economic growth and stabilize prices. In conclusion, Udegbunam advocated for a holistic strategy encompassing both fiscal and monetary measures to steer Nigeria towards sustainable economic growth. By fostering synergy between policy frameworks and focusing on enhancing investment attractiveness, he believes the country can navigate the current economic landscape and pave the way for robust growth outcomes. As global economic conditions evolve, Nigeria's ability to adapt and implement strategic measures will be pivotal in shaping its economic trajectory.