Likely reactions of market to FGN Sukuk bond auction

The outflow of N241 billion from the interbank market through treasury bills and FGN Sukuk Bond auction this week has raised uncertainty over the movement in cost of funds.

National Daily gathered from experts that while the impact of these outflows are expected to be moderated by inflows of N141 billion from payment of maturing bills, there is however uncertainty on how they will impact movement in cost of funds.

Also reflecting the impact of the inflows on market liquidity, treasury bills recorded 16 per cent over-subscription last week. National Daily analysis showed that the Central Bank of Nigeria (CBN) offered N395 billion worth of bills while public subscription stood at N460 billion. The apex bank however sold bills worth N247 billion.

In the secondary market, where existing bills are re-issued, the apex bank offered bills worth N220 billion  while public subscription and amount sold stood at N73 billion. In the primary market, where fresh bills are issued, the CBN offered bills worth N175 billion while public subscription and amount sold stood at N387 billion and N174 billion respectively.

The Sukuk is an investment certificate that represents ownership interest of the holder in an asset or pool of assets. The certificate entitles the owner to receive income from the use of the assets. According to the DMO, the bond is issued by FGN Roads Sukuk

In addition to the Sukuk, the CBN will conduct treasury bills auction worth N141 billion comprising 91-day bills worth N28.12 billion, 182-day bills worth N23.68 billion and 364-day bills worth N89.08 billion.

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In their projections for the week, analysts at Lagos based Afrinvest, stated: “In the coming week, despite the OMO maturity of N140.9 billion expected to hit the system, we expect money market rates to remain at current levels as the apex bank continues with its frequent OMO mop ups.”

Analysts at Lagos based Cowry Assets Management Plc however projected upward movement in cost of funds. They stated: “This week, there will be maturing treasury bills worth N140.88 billion. This will be offset by treasury bills auctions of the same values and tenors. Hence, at the interbank market, we expect financial system liquidity strain with resultant increase in interbank rates.”

This week the Debt Management Office (DMO) will conclude auction of the first FGN Sukuk Bond worth N100 billion.