The Nigeria Bond Watch - Review and Outlook @041816

Proshare

Monday, April 18 2016 11: 02 AM/ DLM Research

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ANALYSIS
During the week under review, major themes that influenced the domestic fixed income market were: 1) The April 2016 FGN bonds auction by the DMO; 2) OMO bills auction and redemption by the CBN; and 3) The release of March inflation figure (12.80%) by the National Bureau of Statistics (NBS).

At the monthly FGN bond auction, N20.00billion worth of 15.54% FEB 2020 (5yr), N40.00billion of 12.50% FGN JAN 2026 (10yr) and N40.00billion of 12.40% FGN MAR 2036 (20yr) were re-opened at marginal rates of 12.00%, 12.60% and 13.08% for 5year, 10year and 20year respectively. Total subscription stood at N206.73billion, 188% of amount offered.


At the OMO auctions, the CBN offered N130.00billion OMO bills with tenors ranging between 217day to 261day but sold N139.98billion at marginal rates of 9.00%. Subscription stood at N278.82billion, 214% of amount offered.

In our opinion, the high subscriptions at the auctions are indicative of elevated system liquidity from OMO bills redemption worth c.N91.42billion.

The domestic fixed income market opened last week on a bullish note due to robust system liquidity. However, this trend reversed from the mid to the tail-end of the week as auctions’ marginal rates closed higher than anticipated, which triggered some sell off across the curve. More so, the decision to remove Nigeria from Morgan Stanley Capital International Frontier Markets Index on lack of liquidity and currency controls as well as the rise in inflation rate (from 11.40% to 12.80%) equally contributed to the selling spree. Yields rose by an average of 32 basis points across the curve on a week on week comparism.

In the week ahead, the DMO is expected to offer N167.52billion Treasury bills – (91day: N36.79billion, 182day: N35.00billion and 364day: N95.73billion). Also, we expect redemption of treasury bills worth c.N167.52billion. The market may remain bearish this week with consequent rise in yields as system liquidity gradually dwindles whilst dealers take positions ahead of the auction.

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