Monday, July 9, 2012 1:05 PM / DLM Research 

Analysis
Last week, the Debt Management Office (DMO) released the FGN bonds primary auction calendar for the third quarter 2012 whilst the market recorded increased activities, which led to increase in prices of bonds. This is a result of investors' positioning to take advantage of hitherto subdued price levels to go long in anticipation of a probable rate reversal in the weeks ahead. We believe the movements recorded in the market during the week may not be unconnected with the position of fiscal authorities on the current interest rate regime and its inability to support the real economy, especially with respect to stimulating real growth via increasing domestic production and creating employment.
 

The release of the third quarter 2012 FGN bonds primary auction calendar shows a proposed total bond issue of circa N280.00 billion against N290.00 billion for the second quarter of 2012. All bonds to be issued in this quarter are reopening. Whilst we note that the federal government issues sovereign bonds monthly to deepen the domestic bond market, create a benchmark for sub-national and corporate issuance and fund deficits, the high marginal rate observed in the FGN bonds primary market auction in the recent times raises significant concerns. (fig. 3)

Meanwhile, over-the-counter (OTC) trading remained relatively active through the week as yields moved south in reaction to market expectations of a probable reversal of policy rates by the monetary authorities.
 

In the week ahead, it is expected that, there will be a treasury bills primary auction during which circa N95.56 billion worth of 91day and 182day bills is expected to be issued. We equally expect the maturity of circa N202 billion worth of treasury bills and OMO bills worth N108.58 billion. We are inclined to note that the amount maturing is close to that on offer which shows CBN's resolve to keep the system liquidity at a particular level at any given time. However we anticipate an oversubscription of the securities on offer during the auction with respect to the inflow as a result of the maturing bills during the week.
 

LAST WEEK: The Nigerian Bond Watch @ 020712 – DLM

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