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The Nigeria Bond Watch - Review and Outlook @270114

Category: Bonds

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The Nigeria Bond Watch - Review and Outlook @270114

Monday, January 27, 2014 9:55 AM/ DLM Research

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During the review week, the dominant theme in the financial markets was the expected increase in cash reserve requirement (CRR) on public sector deposits to 75% from 50% by the monetary authorities. The other major activity during the week was the sale of treasury and OMO bills.

In line with our expectations, the monetary policy committee retained MPR at 12% for the fourteenth time whilst CRR – on private sector deposits, liquidity ratio and net forex open position were retained at 12%, 30% and 1% respectively. However, CRR on public sector deposits (a major source of liquidity in the financial markets) was increased from 50% to 75%. We however observed that there was no significant impact on the bond market as a result of this change as it was in line with market expectation. In addition, the CBN has indicated plans to take immediate steps to redress the supply demand imbalance in the foreign exchange market while maintaining its focus on anti-money laundering activities.

Whilst we acknowledge the considerations which informed the committee’s policy stance i.e. macroeconomic stability, rising cost of liquidity management on the back of excess liquidity in the banking system, threats facing the oil sector and the loose fiscal stance; we remain strong advocates of sustainable economic growth driven by long-term low interest rates amongst other factors.

The OTC market was characterised by increased activities as a result of demand from domestic investors particularly the PFAs. This development resulted in a slight increase in price of some traded bonds though there was a reversal of this trend at the end of the week.  We expect the current level of activities in the market to continue in the week ahead in the absence of any major economic event.

At the treasury bills auction, N32.89billion worth of 91day treasury bills was offered and while N34.89billion was sold at the rate of 10.75%, while N50.0billion and N120.0billion worth of 182day and 364day were offered as N48.0billion and N120.0billion were sold at the rates of 11.85% and 12.0% respectively. Total subscription during the auction stood at N350.19billion. However, we note the high subscription level witnessed during the auction by the allotment recorded compared to the amount on offer.

Liquidity tightening was sustained during the week via open market operations. A total of N280.0billion worth of OMO bills with tenors ranging between 28days and 48days were offered, while c.N105.31billion was sold at marginal ranging between rates 11.20% and 11.40%. We however observed the low sales recorded during the auction as there were no allotments during most of the auctions. The level of bids submitted by investors during the OMO bills auctions could not be left out as a contributory factor to the non-allotment.

In the week ahead, we expect the redemption of OMO bills worth c.N144billion. In view of this, the current elevated system liquidity will be sustained.

Related News:
The Nigeria Bond Watch - Review and Outlook @021213 
The Nigeria Bond Watch - Review and Outlook @091213

Disclaimer/Advice to Readers: 
While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the authors best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This article is published with the consent of Dunn Loren Merrifield, the author(s) for circulation to the online investment community in accordance with the terms of usage. Further enquiries should be directed to the author whose e-mail is Dunn Loren Merrifield Limited [

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