The Nigeria Bond Watch - Review and Outlook @050916


Monday, May 09 2016 9: 49 AM/ DLM Research

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During the review week, the Nigerian fixed income OTC market was influenced by: 1) the release of May 2016 FGN bond offer circular by the DMO; 2) Treasury and OMO bills auctions and redemption; 3) CRR debit - by the CBN; and 4) inflation expectation

At the treasury bills auction, N45.18billion, N23.43billion and N82.00billion of 91day, 182day and 364day benchmarks were offered and sold at marginal rates of 7.99%, 9.00% and 11.05%, which were higher than 7.88%, 8.99% and 10.25% respectively recorded at the previous auction. Subscription level stood at N261.54billion (174% of volume offered).

At the OMO auction, the CBN offered N30.00billion of a 238day OMO bill but there was no allotment due to high bid rates submitted by dealers, despite subscription level at N63.75billion (212% of volume offered). Despite the CRR debit of N21.70billion from the system, subscription levels at the auctions were still relatively high due to existing system liquidity and inflows from treasury bills redemption (N150.61billion).

It was a mixed reaction in the fixed income market last week as buoyant system liquidity enhanced buying activities of mostly shorter tenors whilst outlook in anticipation of higher April inflation and interest rate fueled sell-off of mid and longer tenors. Consequently, yields rose by an average of 26basis points across the curve week-on-week.

The DMO is expected to re-open N15.00billion, N40.00billion and N50.00billion worth of 15.54% FEB 2020 (5yr), 12.50% JAN 2026 (10yr) and 12.40% FGN MAR 2036 (20yr) respectively at this week’s FGN bond auction. Also expected is the redemption of OMO bills worth c.N32.03billion. The market may be predominantly bearish this week as system liquidity declines whilst dealers take positions ahead of the auction.

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