The Nigeria Bond Watch - Review and Outlook @100614

Proshare

Monday, October 6, 2014 2:25 AM/ DLM Research

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ANALYSIS
During the review week, dampened interest from investors – domestic and offshore – contributed significantly to the direction of activities. The waning investors’ interest is attributable to weakening fundamentals such as declining oil prices and rising inflation. This, alongside issuance and maturity of OMO bills – which influenced liquidity levels, significantly affected market behavior.

At the open market operations window, a total of N270.0billion worth of OMO bills with tenors ranging between 73days and 177days were offered while N272.30billion was sold at marginal rates of 10.55% and 10.80%. The high subscription levels, which stood at N325.46billion, during the auctions, were an indication of the high system liquidity on the back of the OMO bills that matured during the week (c.N308.79billion). However, at the OMO auction that held on Tuesday 30th September, there was no allotment on the 163days OMO bill due to lower subscription levels which stood at N12.20billion against N40.00billion on offer. The range of bids at the auctions was between 10.55%-11.50%.

The bearish trend in the OTC market continued during the week due to sustained selling pressure across most maturities. We equally observed a shift in the market from the long end of the curve to the shorter end as investors sought to take advantage of the OMO bills auction as rates remained relatively higher than what is obtainable in the secondary market. The downward trend in the prices may reverse in the week ahead as market players may want to take advantage of increasing yields to take positions.

In the week ahead, there will be a treasury bills issuance of about N131.83billion across all maturities. We equally expect the redemption of treasury and OMO bills worth c.N131.83billion and c.N132.97billion respectively. In view of the current elevated system liquidity, we expect the CBN will continue its liquidity tightening via its OMO auctions whilst the market is expected to be largely bearish as dealers continue to trade cautiously.

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