Weakening naira may depress demand at Nigerian bond sale

A bond auction in Nigeria this week is likely to meet with low demand as a weakening currency reduces the appeal of longer dated instruments. Kenyan debt costs are expected to fall due to increased liquidity.    
   
   NIGERIA

Nwankwo, DG of Nigeria DMO

   Lacklustre demand is expected at a bond auction in Nigeria this week as currency volatility and tight liquidity drive investors towards Treasury bills.    
   Nigeria's Debt Management Office plans to raise 70 billion naira ($428 million) in 3- and 20-year bonds at its monthly bond auction on Sept. 11.
   "Investors are not willing to tie down their money on a long tenor instrument and this is driving demand at the short end of the market," one trader with United Bank for Africa said.
   The naira fell to a 20-month low of 164.1 to the dollar on the interbank market on Friday.
   The central bank said on Tuesday it would resist pressure to devalue the naira since it retains ample funds to defend the currency.
   Nigeria's central bank in July hiked the cash reserve requirement for public sector deposits to 50 percent from 12 percent in a bid to tighten naira liquidity and shore up its value but has failed to stem the currency's decline.
   Yields were mixed at last week's Treasury bill auction. The 182-day paper was sold at a yield of 12.34 percent compared with 12.25 percent at the previous auction a fortnight ago, the 91-day paper yielded 10.9 percent from 11.09 percent, while the 364-day paper was at 12.59 percent against 13.08 percent.
   
   KENYA
   Yields on Kenyan debt are expected to fall gradually in coming auctions due to high liquidity and a government keen to bring down its cost of borrowing.
   The central bank is scheduled to sell 9 billion shillings ($103 million) of 91-day, 182-day  and 364-day  Treasury bills next week.
   Yields on local debt have risen to double digits over the last two months, but dipped at last week's auctions which were oversubscribed.
   "Yields will keep coming down if subscriptions remain this high," said Crispus Otieno, a trader at Afrika Investment Bank, adding that liquidity had increased due to maturing debt redemptions.
   However, the central bank has been rejecting high bids as the state struggles to contain its public debt, which hit 52 percent of the national output in the year to June.