News Column

DMO to Auction N100 Billion Bonds

August 11, 2014

Obinna Chima

The Debt Management Office (DMO) will on Wednesday raise N100 billion in three local currency debt issues, comprising the N35 billion issue in a 20-year bond, N15 billion in a three-year paper and N50 billion in a 10-year paper. All the debt instruments are re-openings of previous bonds.

Analysts anticipate lower marginal rates from the fixed income instruments to be auctioned, in line with declining trend in the secondary market yields. Meanwhile, the bond market was broadly muted at the beginning of last week as demand across maturities with exceptions in the March 2024 instrument, which saw local interest from institutional investors.

This was sustained till mid-week as dealers took caution as they awaited the result of the primary market auction.

Week-on-week, the September 2014 instrument witnessed some demand, as yields declined 60 basis points while all other maturities stayed flat or lost 10 basis points. The 2034 instrument which saw no demand the preceding week, finally had some demand last week leading to 10 basis points decline in yields.

Ahead of this week's bond auction, investors are predominantly taking caution as seen in the quiet market activity.

"This week, we expect secondary market bond prices and yields to remain relatively stable in view of increased bond supply from the primary market, which will satisfy part of the expected increase in demand from local and foreign investors," stated analysts at Cowry Asset Management Limited.

The Central Bank of Nigeria (CBN) has continued to achieve its objective of obtaining funds from the market at lower cost. Yields are therefore expected to lose further due to the inherent level of demand in the system.

Money market The interbank money market commenced the week with a much tighter level of liquidity which was built of the preceding week's low level of liquidity and last Wednesday's provision for the Retail Dutch Auction System (RDAS) auction.

This raised the Call and Open Buy Back (OBB) rates higher significantly by 75 basis points, to close at 12.25 per cent and 12 per cent at the end of the first trading day of the week.

But, midweek rates trended higher as trading commenced on Wednesday, with the Call and OBB peaking at 13 per cent during the day but both closed lower at 11.5 per cent and 11.25 per cent respectively due to clarity on the position of the CRR maintenance which tuned out to be a credit figure.

A total of N195.2 billion treasury bills matured into the system last Wednesday, while the CBN simultaneously mopped up with the issuances of the same amount.

Forex market The CBN offered a total of $650 million and sold a total of $644.1 million, 99.1 per cent of the total amount offered at the RDAS. This was offered at the marginal rates of N155.73/$1 at both auctions. The naira lost N1.49 at the interbank market last week.

"We anticipate the naira will stabilise due to increasing oil prices and concurrent increase in demand for the naira as foreign investors seek to participate in next week's bond auction," analysts at Afrinvest Securities Limited stated.

Finally, at the BDC segment, the naira continued to witness pressure due to the recent CBN policy designed to streamline operations of the BDC as it shed 50 kobo to close at N170 to a dollar.

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Source: AllAfrica

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