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DMO to auction N80bn this week

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The Debt Management Office (DMO) is set to auction its first round of bond programme this year worth N80 billion on January 20, 2016. The instrument is denominated in local currency.

According to the issuance plan, the debt office will raise N40 billion each from bonds maturing in 2020 and 2026, using the usual Dutch Auction System.

The 2020 maturing bond is a reopening of a previously issued bond while that of 2026 comes as a fresh issue with the results of the exercise due the next day.dmo

The money market liquidity, which opened the year at about N1.1 trillion balances, had crashed rates as Open Buy Back (OBB), Overnight and average Nigeria Interbank Offered Rate (NIBOR) to 0.5 per cent, one per cent and 7.9 per cent respectively.

But CBN, acting contrary to general expectations, plans to leave system liquidity at the robust levels to spur lending to the real sector began the year with mop-up exercises.

The first liquidity tightening exercise of 2016 withdrew N167 billion of the financial market, pushing OBB and Overnight rates higher to 0.9 per cent and 1.3 per cent respectively.

Similarly, the provisioning for CBN’s special foreign exchange intervention, which took place during the week reduced the liquidity levels further to N470.5 billion.

However, with the increased tightening of money in circulation, money market rates climbed to 1.1 per cent for OBB and 1.6 per cent for Overnight.

Still, the Treasury Bills market, which also witnessed activities, was used by CBN to deliver the second liquidity withdrawal amounting to N136 billion.

Consequently, the money market rates trended higher as OBB and Overnight rates reached 1.7 per cent and 2.3 per cent a piece.

However, contrary to expectations of continued robust monetary policy by the Central Bank of Nigeria (CBN), its multiple currency mops up last week pushed the interbank lending rates high.

The quantity of money in the financial market, which started the week at N1.1 trillion, was cut by over N773 billion in the week, with three monetary policy interventions.

The interventions include two Open Market Operations (OMO) involving sale of treasury bills by the apex bank, and a call for foreign exchange, with the provisioning from the authorised dealers for foreign exchange auction.

OMO is the purchase and or sale of securities in the open (financial) market by the CBN, to either raise money for government or control the quantity of money in circulation

Meanwhile, developments in the currency market have remained unchanged, with the naira trading within tight bands and currently at N300 to the dollar at the parallel market.

However, the official exchange rate remained unchanged at N197/$, while the interbank market rate also stable at N199.10/$.

The exchange rate imbalance has been attributed heavily on the persistent fall in Brent crude price, settling below $30 per barrel last week , causing distortions in government’s revenue projections.

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