The Nigeria Bond Watch - Review and Outlook @011816

Proshare

Monday, January 18 2016 11: 12 AM/ DLM Research

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ANALYSIS

The overall direction of the market during the review week was dictated by: 1) the issuance of FGN bond issuance calendar for 1st quarter, 2016; and January 2016 FGN Bond Offer Circular by the DMO and; 2) OMO bills redemption – which influenced liquidity levels and affected market behavior.

As stated in the bond issuance calendar, the DMO is offering between N100.00 – N150.00billion, N120.00 – N180.00billion and N40.00 – N60.00billion for 5-Year, 10-Year and 20-Year benchmarks respectively in 1st quarter of 2016. This is 44% (or 117%) and 18% (or 78%) greater than preceding and corresponding quarters respectively.

At the OMO auctions, the CBN offered N80.00billion but sold N214.93billion OMO bills with tenors ranging between 147day and 220day at marginal rates ranging between 7.60% and 7.90%. Subscription level stood at N260.77billion (326% of volume offered). In our opinion, the high subscription was due to high system liquidity stemming from OMO bills redemption worth c.N250.17billion.

The fixed income OTC market experienced mixed reactions as buying activities dominated the short-end whilst the longer tenors witnessed sustained sell off. Consequently, yields rose by an average of 34basis points week-on-week.

In the week ahead, the DMO is expected to re-open N40.00billion worth of 15.54% FEB 2020 (5yr) and new issuance of N40.00billion of FGN JAN 2026 (10yr) at this week’s FGN bond auction. Similarly, treasury bills worth N195.96billion are expected to be on offer - (91Day: N36.79billion, 182Day: N39.18billion and 364Day: N120.00billion). We also expect redemption of treasury bills worth N195.96billion. Given the prevailing system liquidity and barring any OMO auction from the CBN, the market may continue to be mixed whilst market participants take position ahead of the auctions.


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