Monday April 30, 2012

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Analysis

In our review of market for the previous week, we observed that secondary market activities for FGN bonds were driven by the monthly auction which took place midweek and the release of the March 2012 inflation figures. During the auction, three (3) bonds were offered; the 10.50 March 31, 2014 (N20.00bn), 15.10 April 27, 2017 (N35.00bn) and 16.39 January 27, 2022 (N35.00bn). The bonds were issued at marginal rates and coupon of 14.94%, 15.10% and 15.475 respectively. The 10.50 March 31 2014 and 16.39 January 27, 2022 were reopening while the 15.10 April 27, 2017 was a new issue. Subscription levels for the instruments were 211.90%, 126.06% and 87.66% respectively. In our opinion, the oversubscription indicates investors’ preference for shorter tenor securities as they seized the opportunity to bid more for the 10.50 March 31, 2014 bond with the lowest Term to Maturity (TTM). 

Also during the week, the inflation figure for the month of March 2012 was released by the National Bureau of Statistics (NBS) which stood at 12.10%, up 20bps from 11.90% recorded the previous month. The moderate increase in the headline index was attributed to the planting season which led to a rise in market prices of food products and other prices in the economy. As a result, we note that real rate in the economy remains positive given that average yields on treasuries and government bonds are ahead of inflation by c. 253bps and 319 respectively. However, in our overall assessment of the various economic indicators, we are of the opinion that, despite the shift to a positive real rate (fig. 3), growth in domestic production has remained weak. Meanwhile, we are inclined to highlight the relative growth in the production index – under a negative real rate regime - prior to the shift in policy stance. (fig. 3) 

Meanwhile, over the counter trade (OTC) trading remained relatively stable and active during the week as yields moved slightly up and down in speculation to the outcome of the two major happenings. 

Skye bank Nigeria Plc raised $100 million in debt from the international financial markets at a floating coupon rate of 6.30% and a 7-year tenor. This further underpins the basis of our concerns about the prevailing domestic interest rate regime, which is a disincentive to issuers of long term debt and the development of the domestic bond market. In our analysis of the market last week, we emphasised that Nigerian corporates with acceptable credit ratings could access the international markets at rates between 5.50% and 8.00% given the recent yield trend for the sovereign eurobond and the turmoil in the advanced financial markets.  

The treasury bills market witnessed a primary auction during which N34.89 billion worth of 91day bills was offered and sold at the rate of 13.85%, whilst N45.00 billion worth of 182day bills was offered and sold at the rate of 14.59% and N60.73 billion worth of 364day bills was also offered and sold at the rate of 14.64%. Total subscription during the auction stood at N539.69 billion.
 

Also, we note the liquidity tightening that occurred towards the end of the week as N100.00 billion worth of 118day, 237day and 335day OMO bills were offered whilst c. N172.38 billion was sold at marginal rates of 14.08%, 14.34% and 14.50% respectively. The subscription level for the securities was 508.27%, an indication of the liquidity levels in the system on the back of the injection of c. N300 billion budget allocations during the week.


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