Monday, December 24, 2012, / DLM Research Download Full Report Here Analysis As expected, the key drivers of activities during the review week were the release of the November 2012 inflation figures (which showed an increase of year on year inflation to 12.30% from 11.70%), the FGN primary market bond auction by the DMO and treasury bills auction by the CBN.
At the monthly federal government bond auction, N16.49billion worth of 5year was sold while N60billion worth of 7year (N30billion) and 10year (N30billion) bonds were sold. As a result of the elevated liquidity levels in the system, marginal rates for the bonds i.e. the 15.10 April 27, 2017, 16.00 June 29, 2019 and 16.29 January 27, 2022, came in lower at 11.80%, 12.10% and 11.90% respectively, against 12.49% and 12.01% recorded at the last auction. All securities were reopened. In addition, subscription levels for the instruments stood at N143.85billion. As we have always witnessed, the 10year instrument recorded the highest demand. In our opinion, the decline in m/m marginal rates indicates the increasing demand for Nigerian government securities in recent time as the market continue to experience demand pressure from offshore investors.
At the treasury bills auction, N33.27billion worth of 91day bills was offered sold at the rate of 11.67% against 11.95% at the previous auction, whilst N35.03billion and N69.36billion worth of 182day and 364day were offered and sold at the rates of 11.70% and 11.80% respectively against 11.98% and 11.99% during the last auction. Total subscription during the auction stood at N298.67billion versus N391.69 billion at the last auction. In addition, a total of N51.85billion worth of treasury bills across maturities was allotted on non-competitive basis.
The OTC market for FGN bonds opened the week on an active note as it witnessed intraday volatility and stability towards the end of the week as traders react to the current market trend. However, there was sustained demand pressure on tradable federal government bonds on the back of increased interest from prospective investors, which led to an increase in prices of the respective tradable securities. It could be recalled that in the recent times, the market has witnessed significant activity which has led to drop of yields across maturities from 15.00% levels to where it is at present (12.00%), which could be attributed to the JP Morgan and Barclays initiatives.
In line with our expectation, liquidity tightening was maintained as N200.00billion worth of 119day and 126day OMO bills were offered whilst N117.60billion were sold at marginal rates of 13.40% and 13.45% respectively. Total subscription stood at N210.70billion. In our opinion, the OMO sales by the CBN is in reaction to the increase in liquidity given that OMO bills worth N110.13billion matured during the week and the reflection of funds from the disbursed budgetary allocation in the system.
In the week ahead, there will be a simultaneous Treasury bill issuance and maturity of about N74.50billion of 91days and 384days. Also OMO bills maturity worth c. N143.17 billion. In view of the present and previous week’s events, we expect system liquidity tightening
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