The Nigeria Bond Watch - Review and Outlook @051616


Monday, May 16 2016 12: 32 PM/ DLM Research

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During the week under review, major themes that influenced the domestic fixed income market were: 1) The May 2016 FGN bonds auction by the DMO; and 2) OMO bills auction and redemption by the CBN.

At the monthly FGN bond auction, N15.00billion, N40.00billion and N50.00billion worth of 15.54% FEB 2020 (5yr), 12.50% FGN JAN 2026 (10yr) and 12.40% FGN MAR 2036 (20yr) were offered whilst N7.50billon, N20.00billion and N25.00billion were re-opened at marginal rates of 13.25%, 13.73% and 13.90% for 5year, 10year and 20year respectively. The DMO only allotted 50% of the volume offered despite subscription at N159.60billion, 152% of amount offered.

At the OMO auctions, the CBN offered N60.00billion OMO bills with tenors ranging between 231day to 233day but sold N42.99billion at marginal rate of 10.00%. Subscription stood at N64.03billion, 107% of amount offered.

In our opinion, the high subscriptions at the auctions are indicative of existing system liquidity and inflow of c.N32.03billion from OMO bills redemption.

The domestic fixed income market experienced mixed reactions last week. The week opened on a quiet note as selling activities dominated most trading sessions. However, market became bullish during the mid-week as unmet demands at the auctions hit the OTC market and subsequently resulted to increased buying activities. Nonetheless, anticipated higher April inflation figure expected to be released this week propelled increased sell off and forced yields upwards by an average of 63 basis points on a week on week comparism.

In the week ahead, the DMO is expected to offer N110.94billion Treasury bills – (91day: N32.44billion, 182day: N22.82billion and 364day: N55.68billion). Also, we expect redemption of treasury bills worth c.N110.94billion. The market may remain bearish this week with further upward movement in yields on the back of higher inflation expectation whilst dealers take positions ahead of the auction.

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