Analysis During the review week, secondary market activities for FGN bonds were influenced by the bond auction during which N25.00 billion worth of each of the three (3) bonds on offer were sold i.e. the 15.10 April 27, 2017; 16.00 June 29, 2019 and 16.39 January 27, 2022, at marginal rates of 16.20%, 16.59% and 16.30% respectively against 15.85%, 16.00% and 16.21% respectively during the previous auction.. All the securities were reopened.
In addition, oversubscription levels for the instruments stood at 64.12%, 11.20% and 107.08% respectively, while total subscriptions stood at N121.60 billion as against N129.70 billion at the June auction.
We note the highest subscription on the16.39 January 27, 2022, which could be attributed to investor’s quest to take advantage of the high coupon of the bond. In our opinion, the general oversubscription levels further indicates the sustained presence of foreign and institutional investors as they position their respective portfolios to take optimal advantage of the high domestic interest rate regime. We are equally inclined to note high range of bids (15.00%-18.00%) during the auction which could account for the high marginal rates recorded during the action.
Also, inflation figures for June 2012, released during the week by the National Bureau of Statistics (NBS), shows a 20-basis-point increase in year-on-year (y/y) headline inflation to 12.90% compared with 12.70% in the previous month. Theoretically, we therefore anticipate further increase in yields on the back of the trajectory of inflation. (fig. 3)
Meanwhile, over-the-counter (OTC) trading remained relatively active in reaction to the release of June 2012 inflation figures. However, we note a cautious trading approach across the market in view of the next meeting of the Monetary Policy Committee (MPC) scheduled for the early part of this week.
In the week ahead, we expect a Treasury bill auction worth about N154.89 billion while there will be a treasury bills and OMO bills maturity worth about N144.89 billion and N72.44 billion respectively. Also expected during the week is the Monetary Policy Committee meeting slated for 23rd and 24th of July 2012. In our opinion given the events of the week, the market is expected to be very active as the speculative trading will continue early in the week while the market will adjust to the outcome of the MPC decision later in the week.
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