A Review of the Nigerian Energy Industry

CBN to withdraw N138bn from circulation

CBN18 October 2015, Lagos – In line with its liquidity management mandate, the Central Bank of Nigeria (CBN) will this week, mop up a total of N138 billion from the system through the sale of treasury bills.

This is expected to be done through a Primary Market Auction (PMA). Ninety-one (91-day), 182-day and 364-day instruments would be sold by the regulator.

The central bank issues treasury bills to reduce the volume of money supply in the system, in a bid to control inflation. Inflation rose to 9.4 per cent last month, its highest level since this year.

Also, during the week, maturing treasury bills worth N138 billion are expected to hit the financial system.

Meanwhile, the financial system remained awash with liquidity last week following the inflow of N1.1 trillion that came in the preceding Friday. That had taken the opening balance last Monday to N1.2 trillion. Consequently, the open buy back (OBB) and overnight rate opened the week at 0.8 per cent and 1.2 per cent respectively.

But the liquidity condition stayed upbeat but gradually moderated to N756.4 billion last Wednesday as the OBB and overnight tenors firmed at 0.8 per cent and 1.1 per cent in that order.

Also, analysts at Afrinvest Securities Limited revealed that investors’ appetites for short term securities continued to gain traction as evident in the trajectory of treasury bills yields in the last few weeks. Average yields during the week pegged at 9.1 per cent after declining to 8.3 per cent from the open of 9.5 per cent. Bullish sentiments on the shorter term treasury bills instruments drove down short term yields to an average of 5.8 per cent from 6.5 per cent the preceding week, according to Afrinvest.

“We expect the level of liquidity in the system to remain upbeat while we opine that treasury bills rate will continue to respond to short term macroeconomic manifestations,” they added.

Forex Market
The foreign exchange market at the interbank remained relatively stable at the CBN’s peg with an average of N198.48/$1. During the week, the naira depreciated against the dollar by 0.3 per cent to settle at N198.92/$1 against the preceding week’s level of N198.36/$1.

The central bank remained committed to its resolve to defend the local currency against the greenback amid the plunge in global oil prices and the shaky external reserves.

At the BDC/parallel segment of the market however, the naira firmed at N225/$1 for most part of the days of the week though it depreciated slightly to N225.50/$1 last Thursday.

“In our opinion, the true state of the market for forex will continually be pictured by the BDC/parallel market pending when the interbank can reflect the real demand-supply dynamics,” Afrinvest analysts insisted.

Bond Market
The bond market continued its bullish trend last week as yields across maturities and classifications further trended downward in response to clearer macro-economic signals following the clearance of some ministers by the Nigerian Senate during the week.

Average yields during the week declined by 43 basis points to close at 14.1 per cent last week, from 14.5 per cent the preceding week. Most activities in the bond market in the week were witnessed across benchmark bonds in line with huge liquidity in the system which seemed to be impacting significantly on yields.

The Debt Management Office (DMO) during the week conducted October 2015 bond auction which re-issued a total of N80 billion in line with its earlier plan. The result of the auction, which was carried out on FEB 2020 and MAR 2024 instruments, further buttressed the fact that the local bond market remained principally driven by domestic investors.

The FEB 2020 instrument was planned to raise N40 billion but was 157 per cent oversubscribed with a clearing rate of 13.11 per cent while the MAR 2024 instruments auctioned to raise N40 billion was also 105 per cent oversubscribed at a marginal rate of 13.87 per cent.

Analysis of the sovereign yield curve by Afrinvest showed “the true condition of the market as yields across tenors moderated relative to the previous week’s level as near flatness is noticeable at the short to medium term end of the curve with a slight inversion at the long end of the curve.

“Given the current market condition, we reiterate the opportunities noticeable along the yield curve at the longer end of the curve in benchmark bonds (JUL 2030 and JUL 2034) and off-the-run bonds (NOV 2028, MAY 2029 and NOV 2029) given their average yield of 16.6 per cent against overall average of 14.5 per cent.

“The bond market experienced a convergence in yield at 15.5 per cent between August and September, 2015; if this situation repeats itself, the longer tenured bonds will offer optimal return to investors in our view,” they added.
*Obinna Chima – Thisday

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