Higher Liquidity to Spur Demand for Nigerian Bonds

Nigerian bonds are expected to attract good demand from local pension funds and other asset managers likely to pick up the slack following a sell-off by foreign funds spooked by a drop in the price of crude oil.
The appetite for bonds by local investors will be driven by a new central bank rule that is expected to boost liquidity in the money markets.
Increased money market liquidity after the central bank capped the amount of idle cash that banks can deposit with the regulator will drive demand for bonds by local investors, helping to offset a sell-off by foreign funds.
Nigerian assets have taken a beating in recent weeks on the back of a drop in the price of crude oil.
In a bid to force banks to lend to the productive sector and stimulate economic growth, Nigeria’s central bank restricted lenders and discount houses from placing more than N7.5 billion each as deposits with the regulator.
This has raised the level of liquidity in the banking system and buoyed demand for local debt by local pension funds and other assets managers.
Nigeria plans to raise N65 billion ($392 million) through bonds with maturities of three to 20 years at an auction on November 12.
“We are expecting strong demand at the bond auction next week, with subsequent drop in yields across the board,” one dealer said.
Dealers said banks are expected to increase their position in the short-dated instruments, while pension funds are seen buying more of the long-term debt.
Yields fell at the secondary bond market on Thursday after the central bank announced its restriction on volume of deposits banks could place with it.
Yields on the bench-mark bond 2014 however closed at 12.69 percent compared with 12.56 percent last week.

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