Monday, May 07, 2012
 

Last week, surplus liquidity within the system remained the key driver of market activities in view of the inflow of budgetary allocations from the preceding week. As a result, market concentration was at the short end of the curve. Meanwhile, over-the-counter (OTC) trading remained relatively stable and active as yield movements across all tradable maturities were insignificant.
 

We believe this trend suggests that the more attractive yields available on short-tenored securities remains the central consideration regarding investors’ portfolio decisions; hence, the flattening of the domestic yield curve. (fig. FGN Yield Curve)
 

We are therefore inclined to highlight the liquidity tightening that occurred on the last day of the week as N70.00 billion worth of 118day and 239day OMO bills were offered whilst circa N89.53 billion was sold at marginal rates of 14.08% and 14.19% respectively. We equally observed that the oversubscription level was circa 94% whilst the amount allotted when compared with the offer amount is higher by 27.90%.
 

In addition, we note that the OMO auction result affected the market as the rates came out higher than expected given that treasury bills with similar DTM to the auctioned securities were trading between 11.00% - 12.00%. Consequently, this led to significant change in yields on treasury bills as traders tried to adjust accordingly.
 

In our opinion, the oversubscription is not unconnected with the increase in system liquidity on the back of the N300.00 billion budgetary allocations for the month of April.
 

In the week ahead, we expect the maturity of treasury and OMO bills worth N127.06 billion and N130.05 billion respectively. While there will be a floating of about N147.06 billion worth of treasury bills. The market is expected to remain relatively liquid in the absence of further liquidity tightening.
 

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