4 August 2014

Nigeria: CBN to Auction N195 Billion Treasury Bills

The Central Bank of Nigeria (CBN) will auction treasury bills worth N195.18 billion this week. The move is in line with the regulator's decision to continue to manage the volume of liquidity in the system as well as to control inflation.

A breakdown of the fixed income instrument to be sold would consist of 91-day bills worth N45.18 billion; 182 day bills worth N50 billion; and 364 day bills worth N100 billion. Also, treasury bills worth same amount and tenors would mature on Thursday.

Meanwhile, the interbank money market commenced last week Wednesday highly illiquid after the Eid-al-Fitri holiday on the back of the CBN's mop up the preceding Friday.

Additionally, the CBN mopped up approximately N400 billion last Wednesday, which had significant impact on the systemic liquidity considering the provisions for the Retail Dutch Auction System (RDAS) and the fact that there were only three working days within the week.

The open buy back (OBB) and call rates traded between the 11 per cent and 12 per cent levels during the trading session but settled at 11.6 per cent and 11.8 per cent respectively. The 6-month Nigerian Interbank Offered Rate (NIBOR) also closed at 13.9 per cent.

Similarly, the treasury bills market was mildly impacted by the liquidity mop up of the CBN, in addition to the usual end of month sell-offs by traders, analysts at Afrinvest Securities Limited stated.

Rates increased by an average 56 basis points week-on-week, a mild dip from a peak of 11.2 per cent last Wednesday. Also, on Thursday, open market operations' maturities worth N104 billion hit the system, easing liquidity mildly as rates inched downwards to 10.9 per cent and 11.3 per cent in the OBB and Call rates.

"This reduction in the frequency of mop up is a significant deviation from the CBN's aggressive liquidity moderation earlier in the year. However, a key inference was the waning demand driven by the usual month end selloffs," Afrinvest Securities argued.

The research and investment firm anticipated that liquidity will ease moderately this week, on the back of OMO and primary market auction maturity of N150 billion and N190 billion, softening liquidity mildly.

It also predicted that institutions (especially the PFAs) would reassess their position during the month based on statutory requirement. This is expected to assist in renewing demand in the fixed income market given the high proportion of investment required in that space.

"We expect financial system liquidity to come under pressure from banks' purchase of forex, hence; we anticipate increase in interbank rates," analysts at Cowry Asset Management Limited stated.

Forex Market The naira retreated from its gaining streak at the interbank last week as it dipped by 15 kobo week-on-week. This was probably due to the low level of liquidity in the system and a single RDAS auction held during the week.

However, the recent trend of multinationals approaching the market to sell dollars twice monthly rather than once a month had been responsible for the strengthening of the naira. The nation's currency closed at N161.95 to a dollar.

The value of the naira also weakened marginally at the BDC segment, losing 50 kobo week-on-week to close at N169 to a dollar. Analysts argued that the depreciation may be attributed to the commencement of the enforcement of the new capital requirements for BDCs this week.

As the deadline fixed for BDC operators to comply with the new capital requirements ended last Thursday, indications had emerged that defaulting firms would have their operating licences revoked by the central bank. However, a reliable source at the central bank who spoke to THISDAY on condition of anonymity disclosed that a lot of the BDC operators have complied.

He however, declined to disclose the number of firms that have met the new capital requirements for the sub-sector.

"I can confirm to you that many of the BDCs have applied and for those that have not met the deadline, the guideline is clear about what they should expect," the source had explained.

The CBN had announced a new minimum capital requirement of N35 million for the operation of BDCs in the country, up from the N10 million it was previously. It also reviewed the mandatory cautionary deposit for BDCs upward to N35 million.

Bond Market The bond market commenced the week bullish at the short end of the yield curve declining by an average 20 basis points while the mid to long term instruments were broadly flat.

This trend was sustained last Thursday as the market liquidity improved. The 9.25 per cent FGN Sept 2014 and 4.0 per cent FGN April 2015 instruments witnessed the highest pressure declining 50 basis points and 30 basis points respectively to 10.2 per cent and 10.4 per cent respectively.

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