Bond Auction: DMO Returns ₦108.96Bn as Investors Demand Higher Rates
Patience Oniha -Director General, Debt Management Office

Bond Auction: DMO Returns ₦108.96Bn as Investors Demand Higher Rates

At the bond auction on Wednesday, the Nigerian Debt Management Office, DMO, returns N108.96 billion to fixed income market investors over demand for higher yields.

Debt market has been witnessing some sorts of yield repricing, and some analysts interpret this to mean an invitation for foreign investors’ participation in the economy.

Sentiments were broadly mixed in the fixed income market, at the front end of the curve, the NTB benchmark curve was unchanged at an average of 1.45%.

Chapel Hill Denham said bond yields expanded by an average of 4bps to 10.06% across the benchmark yield curve, driven by intermediate (+2bps to 10.36%) and long (+27bps to 10.90%) term bonds.

As expected, the DMO offered N150 billion, but demand was weak with investor subscription pegged at N189.51 billion.

According to Chapel Hill Denham’s note, this implying a bid-offer ratio of 1.3x, compared to 1.6x at the January auction.

“Investors demanded for substantially higher yields, hence, the DMO allotted only N80.55 billion at the open auction and returned N108.96 billion”, analysts said.

The DMO allotted across the three tenors on offer: N33.62 billion of MAR-27, N28.90 billion of MAR-35 and N18.03 billion of JUL-45.

Meanwhile, the DMO issued additional N122 billion as non-competitive allotment.

Marginally rates at the auction surged by an average of 254bps to 11.10% from 8.56% at the previous auction: MAR-27 (+227bps to 10.25%), MAR-35 (+251bps to 11.25%), JUL-45 (+285bps to 11.80%).

“We expect secondary market bids to gravitate towards auction clearing yields tomorrow, but are likely to stabilise around that level as lost bids seek to cover positions”, Chapel Hill Denham said.

It was also noted that the open market operations (OMO) curve eased by an average of 15bps to 5.91%.

In the money market, interbank funding pressures eased further as financial system liquidity opened higher at N591 billion from N463 billion yesterday.

As a result, the Open Buy Back (OBB) and Interbank (O/N) rate declined by 50bps apiece to 2.00% and 2.25% respectively.

Analysts at Chapel Hill Denham said financial system liquidity will likely tighten in subsequent sessions.

They attributed this expectation to settlement of the DMO’s bond sale on Friday, and the CBN’s retail FX auction holding the same day.

Also, in the currency market, the naira remained unchanged at the official and SMIS windows to N379.00, and N380.69 respectively.

However, the Naira weakened against the United States dollar in the I&E Window by 8bps or 33kobo to 410.00 and by 1.1% or N5 to 478.00 in the parallel market.

Jumpy Inflation Rate: No Respite until Second Half of 2021 –CHD

After declining 2% year to date, the nation’s external reserves printed at US$35.58 billion.

Bond Auction: DMO Returns ₦108.96Bn as Investors Demand Higher Rates