The Nigeria Bond Watch - Review and Outlook @062215

Proshare

Monday, June 22, 2015 9:41 AM/ DLM Research

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ANALYSIS

Major drivers of activities in the fixed income market for the review week were 1) the June 2015 FGN bond primary market auction held by the Debt Management Office (DMO); 2) Treasury and OMO bills auctions and redemption by the CBN; 3) Net CRR credit – which influenced liquidity levels and affected market behavior.

At the monthly FGN bond auction, N40.00billion, N15.22billion and N25.00billion worth of FGN FEB 2020 (5-yr), 14.20% MAR 2024 (10-yr) and 12.149 JUL 2034 bonds (all reopenings) were offered and sold at marginal rates of 14.429%, 13.50% and 14.249%, higher than May auction stop rates of 13.845%, 13.48% and 13.88% for 5- year, 10-year and 20-year respectively. Subscription during the auction was 163% of amount offered.

At the treasury bills auction, N26.30billion, N25.00billion and N92.34billion worth of 91day, 182day and 364day worth of bills were offered and sold at marginal rates of 10.00%, 12.70% and 12.80% respectively. Total subscription during the auction was 192% of amount offered. At the OMO auction, the CBN offered N30.00billion of a 178day OMO bill but sold N79.71billion at a marginal rate of 13.70%.

Subscription levels at auctions may be indicative of increased system liquidity from treasury bills redemption and CRR credit worth N170.18billion and c.N27.70billion respectively.

At last week’s trading sessions, amidst activities by domestic institutional investors, the fixed income market experienced mixed reactions as there were both buying and selling pressures as a result of: elevated system liquidity; outcome of midweek auctions and net CRR credit. Consequently, yields rose by an average of 20 basis points across most tenors on a week-on-week comparism.

In the week ahead, T.bills worth N120.53billion will be offered across maturities (91day-N31.19billion, 182day- N39.34billion and 364day-N50.00billion). We expect redemption of treasury and OMO bills worth N134.57billion and c.N134.57billion respectively. Barring any OMO auction from the CBN to mop up anticipated liquidity, we expect the market to be bullish as domestic institutional investors may continue to drive demand.

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