The Nigeria Bond Watch - Review and Outlook @111714

Proshare

Monday, November 17, 2014 12:04 AM/ DLM Research

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ANALYSIS

The activity of the week under review was influenced by 1) the November 2014 FGN bond primary market auction held by the Debt Management Office (DMO); 2) the release of October inflation figures (headline: 8.10%); 3) issuance and maturity of OMO bills– which influenced liquidity levels and also affected market behavior.

At the monthly FGN bond auction, three benchmark bonds were re-opened i.e. the 13.05% AUG, 2016 (3yr), 14.20% MAR, 2024 (10yr) and 12.15% JUL, 2034 (20yr). N65.00billion was offered whilst N55.00billion was sold – N10.00billion (3yr) FGNs, N25.00billion (10yr) FGNs and N20.00billion (20yr) FGNs; marginal rates at the auction were 12.00%, 12.80% and 13.00% against 12.14%, 12.79% and 12.699% for 3year, 10year and 20year respectively at the previous auction. In our opinion, dampened interest from investors and subsequent reduction in subscription (N104.41billion) against the previous auction (N116.31billion), may have informed the reduction in allotment by the DMO.

In a bid to mop up excess liquidity from the system, the CBN offered a total of N80.00billion worth of OMO bills with tenors ranging between 171days and 182days while N228.03billion was sold at marginal rates ranging between 10.96% and 10.97%. Total subscription stood at N262.72billion (285.04%). The high subscription levels could be ascribed to increased system liquidity on the back of inflows (c.N244.15billion) from redemption of OMO bills during the week.

Waning investors’ interest attributable to weakening fundamentals such as declining oil prices and Naira depreciation contributed largely to the bearish trend in the domestic fixed income market which continued during the week as selling pressure persisted across most maturities. The outcome of the midweek auction and the slight moderation in October inflation by 20basis points could not significantly affect the market as yields continued its northward trend, gaining an average of about 50basis points across most trading benchmarks.


In the week ahead, treasury bills worth c.N119.94billion will be offered across maturities (91day-N40.65billion, 182day-N25.00billion and 364day-N54.29billion) whilst we expect the maturity of treasury bills worth c.N119.94billion. Barring any inflow and given the prevailing investors’ perception, market is expected to be largely bearish as selling activities may persist.

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