The Nigeria Bond Watch - Review and Outlook @062016

Proshare

Monday, June 20 2016 10: 10 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 June 2016 FGN bond auction by the DMO; 2) Treasury and OMO bills auction and redemption by the CBN; 3) The release of May inflation figure (15.10%) by the National Bureau of Statistics (NBS); and 4) The release of the CBN’s policy framework on the flexible exchange rate regime.

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 N22.00billon, N40.00billion and N50.00billion were re-opened at marginal rates of 14.20%, 14.40% and 14.98% for 5year, 10year and 20year respectively. The DMO allotted N112.00billion against N105.00billion on offer as subscription stood at N171.87billion, 164% of amount offered.

At the treasury bills auction, N35.10billion, N25.00billion and N92.34billion of 91day, 182day and 364day benchmarks were offered whilst N48.10billion, N29.00billion and N152.34billion were sold at marginal rates of 8.00%, 9.35% and 11.99% respectively.

The CBN conducted a special OMO auction where N205.94billion of a 364day OMO bill was allotted at marginal rate of 13.50%. This is against the backdrop of an earlier auction where N50.00billion was offered but there was no allotment.

In our opinion, the high subscriptions at the auctions are indicative of elevated system liquidity from treasury and OMO bills redemption worth N152.44billion and c.N161.89billion respectively.

The fixed income market witnessed mixed reactions last week as demand for shorter maturities forced their yields downwards whilst sell off on mid-tenored and long tenors led to rise in their yields. The rise in inflation rate (from 13.70% to 15.10%) equally contributed to the selling spree. Week-on-week, yields rose marginally by an average of 28basis points across the curve.

In the week ahead, the DMO is expected to offer N107.46billion Treasury bills – (91day: N18.12billion, 182day: N39.34billion and 364day: N50.00billion). Also, we expect redemption of treasury bills worth c.N107.46billion. The market may remain bearish this week with further upward movement in yields as dealers take positions ahead of the auction whilst expecting further OMO auctions from the CBN.

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