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The Nigeria Bond Watch - Review and Outlook @072516

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Monday, July 25, 2016 12: 10 PM/ DLM Research

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During the week under review, activities in the domestic fixed income market were influenced by: 1) Treasury and OMO bills auctions and redemption by the CBN; and 2) The release of June inflation figure (16.50%) by the National Bureau of Statistics (NBS).

At the treasury bills auction, N36.79billion, N39.18billion and N52.00billion of 91day, 182day and 364day benchmarks were offered whilst N36.79billion, N39.18billion and N129.00billion were sold at marginal rates of 14.14%, 15.49% and 16.48% respectively. Subscription level stood at N392.39billion (307% of amount offered and 191% of volume sold).

At the OMO auction, the CBN offered N70.00billion of a 357day OMO bill but sold N75.54billion at a marginal rate of 17.00% as subscription stood at N122.99billion (176% of amount offered). In our opinion, the high subscriptions at the auctions are indicative of elevated system liquidity from treasury and OMO bills redemption worth N127.96billion and c.N131.52billion respectively.

The fixed income market witnessed mixed reactions last week as selling pressure on short and mid-tenored maturities forced their yields upwards whilst marginal demand for long tenors led to slight decline in their yields. Dwindling system liquidity, rise in inflation rate (from 15.60% to 16.50%) and uncertainty about interest rate direction at this week’s CBN MPC meeting equally contributed to the selling spree. Consequently, week on week, yields rose by an average of 139basis points across the curve.

In the week ahead, we expect redemption of OMO bills worth c.N156.99billion. The market may experience quiet trading sessions this week as dealers take positions and await the outcome of the CBN’s MPC meeting slated for 25
th and 26th July, 2016.

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