The Nigeria Bond Watch - Review and Outlook @062716

Proshare

Monday, June 27 2016 1: 02 PM/ DLM Research

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ANALYSIS
During the review week, 1) treasury bills auction and redemption; 2) statutory allocation from FAAC and; 3) special retail auction by the CBN to clear the backlog of FX demand were major themes that influenced the domestic fixed income market.

At the treasury bills auction, N48.12billion, N69.34billion and N50.00billion of 91day, 182day and 364day benchmarks were offered whilst N18.12billion, N11.34billion and N50.00billion were sold at marginal rates of 9.99%, 12.30% and 14.99%, against 8.00%, 9.35% and 11.99% respectively at the last auction. Subscription level stood at N111.67billion (67% of volume offered) as the DMO allotted only 47% of volume offered.

The fixed income OTC market was predominantly bearish last week due to heightened system illiquidity which spurred increased selling pressure. More so, substantial FX debits following the Special Secondary Market Intervention Sales (SMIS) by the CBN to clear the backlog of FX demand worsened the interbank illiquidity. However, elevated system liquidity from statutory FAAC allocation (c.N143.35billion) and net inflow from treasury bills redemption (c.N28.00billion) spurred some buying activities towards the end of the week.

Nonetheless, yields rose by an average of 156 basis points week-on-week comparism.


In the week ahead, we expect redemption of OMO bills worth c.N115.03billion. The market may resume the week on a bearish note but this trend may reverse towards the mid to end of the week as anticipated increase in system liquidity may spur some buying activities, barring the volume of FX debits or OMO auction from the CBN.

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