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The Nigeria Bond Watch - Review and Outlook @071816

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Monday, July 18, 2016 10: 10 AM/ DLM Research

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During the week under review, major themes that influenced the domestic fixed income market were: 1) The July 2016 FGN bonds auction by the DMO; and 2) OMO bills redemption by the CBN.

At the monthly FGN bond auction, N40.00billion, N40.00billion and N40.00billion worth of 14.50% JUL 2021 (5yr), 12.50% FGN JAN 2026 (10yr) and 12.40% FGN MAR 2036 (20yr) were offered whilst N30.00billon, N35.00billion and N55.00billion were allotted at marginal rates of 14.50%, 14.90% and 14.98% for 5year, 10year and 20year respectively. Subscription level stood at N231.76billion, 193% of amount offered. In our opinion, the high subscription at the auction is indicative of elevated system liquidity stemming from inflow of c.N73.27billion from OMO bills redemption.

The domestic fixed income market experienced mixed reactions last week. The week opened on a quiet note as selling activities dominated most trading sessions. However, market became bullish towards the tail-end of the week as unmet demands at the auctions hit the OTC market and subsequently resulted to increased buying activities. Nonetheless, dwindling system liquidity and anticipated higher June inflation figure expected to be released this week propelled increased sell off and forced yields upwards by an average of 124 basis points, week on week.

In the week ahead, the DMO is expected to offer N127.96billion Treasury bills – (91day: N36.79billion; 182day: N39.18billion and 364day: N52.00billion). Also, we expect redemption of treasury and OMO bills worth N127.96billion and c.N131.52billion respectively. The market may remain bearish this week with further upward movement in yields on the back of thinning liquidity and higher inflation expectation whilst dealers take positions ahead of the auction.

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