FAAC’s N559bn injection pushes fixed income market to positive

The Nigerian bond market was full of activities last week, as traders hastened to take advantage of key decisions of the monetary policy committee meeting and the huge monthly in-flow from the Federal Accounts Allocation Committee (FAAC), which came almost at the same time.

The scramble for the bonds may have been predicated on speculations of a possible raise in the monetary policy rate by the Central Bank during last week’s meeting in Abuja.
But when based on consultations from various stakeholders, the apex bank opted to retain the 12 per cent maximum benchmark for the MPR and its issuance of N195 billion worth of treasury bills under its open market operation (omo).

In an attempt to tame inflation, it succeeded in resolving the wave of uncertainties that pervaded the market, as a result of the speculation trends in the market. According to Mr. Tola Odukoya, an investment analyst at Dunn Loren merryfield limited, “the Monetary Policy Committee’s decision to maintain policy rate given the need stabilize the economy and the Federal Account Allocation Committee (FAAC) inflow of about N559.1 billion were the major drivers in the fixed income market.”

He observed that following the outcome of the most recent FGN bonds auction, traders initially rallied the ten-year bonds into a positive territory considering that those bonds are the most attractive in the market currently.
But with the inflow of liquidity to the system as a result of FAAC disbursements, the CBN saw the need to control money supply by issuing about N195 billion worth of OMO bills with tenors ranging from 56 days to 251 days.

This reversed the positive trend earlier witnessed after the MPC outcome forcing most trading bonds to close the week on a negative note (average -0.0069per cent) when compared to the opening prices at the start of the week. The bond market also witnessed maturity of N125 billion worth of 9.92 Jan 30, 2012 which reduced the outstanding volume of FGN bonds to about N3.5 trillion.

The secondary treasury bills market was very active as yields trended high at the end of the week due to the high marginal rates witnessed at the OMO auctions. In the week ahead, bond traders and dealers say they are looking forward to the issuance of treasury bills worth circa N149.3 billion with tenors of 91, 182 and 364 days whilst N212.9 billion is expected to mature during the week.