Bond investors may receive N605 billion in repayment of the principal amount and last coupon on maturing Federal Government of Nigeria (FGN) Bonds, while disbursements are expected to be made to the three tiers of government from the Federation Account Allocation Committee (FAAC) today, Thursday, January 27, 2022.
The coincidental payments on the same day means there will be a boost in liquidity in the financial market.
This implies that the interbank market rate may crash further and yields on fixed-income instruments could go further down in the days ahead, as the holders of the maturing FGN Bonds seek new assets to invest the funds in.
According to the Debt Management Office (DMO), Nigeria’s total debt stock as at 30th September 2021 was N38.004 trillion or $92.626bn which comprised the external debt stock of the federal government, 36 state governments and the Federal Capital Territory.
Breakdown of this shows that Nigeria has N22.431tr domestic debt while N15.572tr is the external debt. From the N22.4tr domestic debt, the federal government’s share is N18.232tr share while the States + FCT owe N4.2tr.
With the clearing of the N605bn bond to investors, the federal domestic debt profile may drop to N17.627tr, about 4 per cent debt decline. And with more funds, investors may have more investment choices in the meantime.
The DMO may have to raise more debt at the next auction, even as the agency’s calendar shows it would only reopen the 12.50 per cent FGN 2026 and the new FGN 2042 bonds (which were introduced to the market at January, 2022 auction held on January 19, 2022) by issuing N70bn to N80bn each of the notes.
Speaking on the expected liquidity, the Chief Finance Officer of Blackstone Capital Ltd, Mr Olufemi Adenuga, noted that, “The imminent liquidity has been positive for the market since Monday, as investors seek to hedge probable reinvestment risk by taking new positions in FGN Bonds through the secondary market.
“Yields on the sovereign notes have eased an average of 20bps in the week, and we expect this bullish momentum to be sustained, especially as the redemption of N605.3bn from maturing 16.39 per cent FGN January 27, 2022, bond may coincide with the release of monthly statutory allocation to states and local governments. Hence, the market should remain liquid,” Adenuga added.
Last month, the three tiers of government shared N699.8bn as the federal government got N279.4bn, the states took N210.04bn, while LGCs received N155.4bn.