The Nigeria Bond Watch - Review and Outlook @012516

Proshare

Monday, January 25 2016 11: 12 AM/ DLM Research

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ANALYSIS

During the week under review, activities in the domestic fixed income market were influenced by: 1) The January 2016 FGN bond auction by the DMO; 2) Treasury bills auction and redemption by the CBN; and 3) The release of December inflation figure (9.60%) by the National Bureau of Statistics (NBS).

At the monthly FGN bond auction, N40.00billion worth of 15.54% FEB 2020 (5yr) was re-opened and N40.00billion of FGN 22 JAN 2026 (10yr) was newly issued at marginal rates of 12.24% and 12.50% against 10.95% and 11.00% for 5year and 10year respectively at the previous auction. Total subscription stood at N149.43billion, 187% of amount offered. At the treasury bills auction, N36.79billion, N39.18billion and N120.00billion of 91day, 182day and 364day benchmarks were offered and sold at marginal rates of 4.29%, 7.59% and 9.33% against 4.00%, 6.99% and 8.05% respectively at the previous auction. Total subscription stood at N289.06billion, 148% of amount offered.

At the OMO auction, the CBN offered N50.00billion but sold N161.89billion OMO bills at marginal rate of 7.60%. Subscription stood at N161.89billion.

In our opinion, the high subscriptions at the auctions are indicative of existing system liquidity in addition to treasury bills redemption worth c.N195.97billion.

The fixed income market saw mixed reactions last week as demand for short and long-dated maturities forced yields downwards whilst sell off on mid-tenors led to rise in their yields. The rise in inflation rate (from 9.40% to 9.60%) did not really trigger anticipated selling spree. Thus, yields rose marginally by an average of 3basis points across the curve.

In the week ahead, we expect redemption of OMO bills worth c.N331.35billion. The market may experience quiet trading sessions this week as dealers take positions and await the outcome of the CBN’s MPC meeting slated for 25th and 26th January, 2016.

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