FG’s NI94bn bond /OMO auction declines system liquidity by N150bn

The impact of last week’s federal government’s mopping up of N194 billion, comprising of N160 billion bond and the Open market Operation (OMO) N34 billion auction continued to impact the money and debt instrument market.

This was coming as cross section of financial experts have stressed that that money market rates would remain high this week given the absence of OMO maturities and CBN’s stance in tightening money supply.
The Debt Management Office (DMO) sold N160bn worth of 5yr, 10yr and 20yr bonds at 16.24 per cent, 16.29 per cent and 16.28 per cent stop rates respectively.
The March 2017 total sold was N30billion more than offered with stop rates on each maturity at least 25bps lower than the February auction.

However, with the auction, system liquidity weakened by N150billion to negative N173billion following the N160bn FG bond auction and the N34bn OMO auctions.
As a result, the 1month and 3month NIBOR rates increased while the 6month NIBOR rate trended downwards.

Consequently, in the bond market, yields declined on Tuesday following the release of the Nigerian Bureau of Statistics (NBS) inflation report, which disclosed a decrease in headline inflation to 17.78 per cent in February, against 18.72 per cent in January 2017.
However, week on week (w/w) yields inched up 2bps to average 16.02 per cent as investors exited positions following the FG bond auction Last week Wednesday.

Meanwhile, the Capital Bancorp Investment research report on Forward and futures market for the week ended March 17th 2017 revealed that the central Bank of Nigeria (CBN) offered $250m in FX forwards at the interbank market to meet the demands of the real sector.
Furthermore, $97.77m worth of OTC FX futures contracts were opened, a +235 per cent w/w increase. The increase in open contracts was highest on the April 26, 2017 maturity, up $23.42m, while the Feb 28, 2018

The report showed that Open contracts last week was flat w/w. The increase in short dated futures contract, the report said, may be due the increase in CBN’s interventions increasing the likelihood for investors to repatriate funds in the near term.
With $355m March 2017 OTC FX Futures contract maturing in the coming week , experts expressed that CBN may add a new 12month contract, and may also adjust FX rates on OTC future contracts higher , in line with the trend over the last three months.