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CBN To Shrink Liquidity With N170bn Mop Up

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Liquidity in the Nigerian financial system is expected to remain tight this week as the Central Bank of Nigeria (CBN) would be mopping up N170.5 billion through Primary Market Auction, while the Debt Management Office (DMO) opens subscription for the Federal Government of Nigeria Savings Bond for July.

Expected inflow of funds from Federal Accounts Allocation Committee (FAAC) and an Open Market Operation (OMO) maturity of N238.7 billion is however expected to ease liquidity squeeze in the system during the week.

The DMO will this week hold sales of the two and three year savings bond. According to the offer document issued yesterday, it plans to issue the two year paper due July 11, 2020 at 10.483 per cent per annum, while the three year bond due July 11, 2021 would be issued at 11.483 per cent. The bond offer which opened on Monday this week would run tillFriday July 6, 2018.

The CBN will on Wednesday hold a Primary Market Auction offering N9.5 billion, N33.9 billion and N127.1 billion across the 91, 182 and 364-day tenors respectively with expectation of higher marginal rates across tenors.

Analysts said they expect the CBN to conduct OMO auctions in the early trading sessions of this week ahead of the inflows. Analysts also anticipate renewed buying interests by investors in the secondary market following attractive rates.

The bearish run in the bonds market was sustained last week following selloffs by local and offshore investors. Consequently, yields advanced 13 basis points week on week. Local pension administrators were the majority players in the bonds market last week with major selloffs witnessed across the Mar-2027 and Jul-2034 instruments.

At the FGN Bonds Auction on Wednesday, the 12.75 per cent FGN APR 2023 bond and 13.53 per cent FGN MAR 2025 instruments were 58.6 per cent and 45.5 per cent undersubscribed respectively.

On the flip side, the 13.98 per cent FGN FEB 2028 instrument was 2.4 times oversubscribed as more investors positioned at the long end of the curve.

Analysts said they expect a sustenance in the bearish sentiment leading to an appreciation in yields in the bonds market. This is against the backdrop of federal government’s need to fund the 2018 budget as well as continued sell-offs by offshore investors ahead of 2019 general elections.



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