By Abigail Frank

The influence of offshore investors triggered increased demand for FGN bonds last week, causing prices to rise and interest rate to decline.

This was the position of Dunn Loren Merrifield in its latest review of activities in the bonds market.

The research firm observed that the efforts of the Central Bank of Nigeria, CBN’s  to strengthen the naira contributed to the increased interest of offshore investment in the market,  adding that this was supported by the policies to defend the domestic currency as well as Nigeria’s growing external reserves, which stands at capitalisation of $43 billion as at October 31, 2012.

According to the firm, the influx saw the prices of bonds across all tradable maturities increasing by capitalisation of 100 bonds per share (c.100bps).

“Consequently, the demand pressure from offshore investors led to two-way quotes being provided on some bonds that had been trading on one-way quotes, which resulted in higher activity in these bonds.

“Several weeks ago, profit-taking by international investors against the backdrop of rising core inflation, Euro-zone debt crisis and the weak Naira led to a downward trend in the market,” the company said in the report.

In addition, it noted that the bonds market is expected to be liquid during the week, while adding that the CBN was also likely to continue to tighten liquidity through the issuance of Open Market Operation bills.

According to the report, in the week ahead, there will be a Treasury bill of N129.84 billion across all maturities. It is also anticipated that Treasury and Open Market Operation bills worth N129.84billion and N92.52 billion respectively would mature in the week ahead.

“However, over the last few days, it appears there is a reversal of this trend given the changes in contributing factors such as drop in domestic inflation and the strengthening of the domestic currency as naira closed at N157.05 to a dollar in the inter-bank market earlier last week. “Moreso, during last week, liquidity tightening was sustained, as N80.00 billion worth of 85day Open Market Operation bills was offered, while N77.11 billion was sold at marginal rate of 14.05 per cent.

“The sale of the Open Market Operation bills by the Central Bank of Nigeria may not be unconnected with the increase in liquidity in the market given that Open Market Operation bills worth N16.63 billion matured during the week,” it further stated.