• Tuesday, May 28, 2024
businessday logo


Dunn Loren Merrifield analysis of bond market


 During the week under review, we observed a shift to a more cautious approach following a sell-off in the market; this came on the back of the OMO auctions that occurred throughout the week, the mid-week treasury bills auction and the release of the March 2013 FGN bonds auction offer circular.

At the treasury bills auction, rates remained unchanged on the 91-day and 182-day securities, as the amounts on offer – N32.97 billion and N40, billion, respectively – were sold at 9.20 percent and 9.45 percent, that is, same stop rates as the last auction. However, the rate on the 364-day bill recorded a 44bps increase as N117.12 billion was offered and sold at 9.98 percent against 9.54 percent at the last auction. We believe this is a result of sustained liquidity tightening via open market operations in recent weeks. Total subscription during the auction was N266.12 billion versus N529.92 billion at the last auction; the highest demand was seen in the 364-day bills, which had a subscription of N158.21 billion, that is, 135.08 percent subscription.

Meanwhile, a total of N76.31 billion worth of treasury bills across all the maturities was allotted on non-competitive basis.

At the CBN’s open market operations window, a total of N550 billion worth of OMO bills with tenors ranging between 80 days and 164 days was offered, while N224.79 billion was sold at marginal rates ranging between 10.03 percent and 10.50 percent. We observed a slight increase in the marginal rates and low level of sales during the OMO auction, which could be as a result of tight system liquidity given the significant sale of bills executed over the last two months – the highest since 1Q2012. (Fig OMO bills auction Volume). Our estimates show that c.N3.6trillion ($23bn) worth of OMO bills have been offered, while c.N3.1 trillion ($20bn) has been sold in 2013.

However, the over-the-counter (OTC) market witnessed a bearish trend as yields moved up across all tradable maturities, as the market reacted to speculations regarding the upcoming FGN bond auction and other major economic events in the weeks ahead. The highest increase came from the 5Ybenchmark security with 66bps, while the next came from the 10Y benchmark with 63bps, the least affected was the 1M, which experienced 3bps increase. The market is expected to readjust to the outcome of the FGN bond auction scheduled for this week.

At this week’s FGN bond auction, N35 billion worth of 5-year and 10-year bonds each will be issued. We equally anticipate OMO bills maturity worth N249.7 billion. In view of these, we expect the likely increase in system liquidity to be checked by the CBN’s open market operations.