The Nigeria Bond Watch - Review and Outlook @053116


Tuesday, May 31 2016 10: 35 AM/ DLM Research

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In our assessment of activities of the review week, the dominant themes were: 1) The CBN’s MPC meeting; 2) Statutory allocation from FAAC; and 3) OMO bills auction and redemption by the CBN.

The Monetary Policy Committee (MPC) retained the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) at 12%, 22.50%, and 30% respectively. Also retained is the asymmetric corridor of +200/-500 basis points around the MPR. The MPC also planned to introduce greater flexibility in the inter-bank foreign exchange market structure and to retain a small window for critical transactions. The MPC’s decisions were premised severely weakened macroeconomic environment, as reflected particularly in increased inflationary pressure, contraction in real output and rising unemployment. More so, the need to maintain exchange rate and price stability; and reappraise the coordination mechanism between monetary and fiscal policy.

At the OMO auction, the CBN offered N40.00billion of a 217-day OMO bill but there was no allotment due to high bid rates submitted by dealers

The fixed income market started last week on a quiet note as participants await the outcome of the MPC meeting. However, in reaction to the CBN MPC’s decisions, demand hit the market from mid to the end of the week as dealers came to cover positions taken prior to the MPC meeting. In addition, inflow of c.N83.82billion and c.N98.37billion from OMO bills redemption and FAAC allocation respectively also enhanced the buying pressure. Hence, week-on-week, yields declined by an average of 90basis points across the curve.

In the week ahead, the DMO is expected to offer N143.85billion T.bills - (91Day: N45.85billion, 182Day: N18.00billion and 364Day: N80.00billion), whilst treasury bills worth N143.85billion will be redeemed. The market may kick-start the week on a bullish note whilst market participants take position ahead of the treasury bills auction.

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