SAT DEC 21 2024-theGBJournal| The FGN bond secondary market was bearish following November’s CPI print (+72bps y/y to 34.60%).
Thus, the average yield expanded by 21bps to 19.7%. Across the benchmark curve, the average yield expanded at the short (+55bps) and mid (+6bps) segments, specifically as investors sold off the APR-2029 (+145bps) and JUL-2030 (+51bps) bonds, respectively.
The average yield closed flat at the long end. At Monday’s PMA, the DMO offered instruments worth N120.00 billion to investors through re-openings of the 19.30% FGN APR 2029 (Bid-to-offer: 1.1x; Stop rate: 21.14%) and 18.50% FGN FEB 2031 (Bid-to-offer: 3.5x; Stop rate: 22.00%) bonds.
The total subscription level settled at N278.82 billion (previous: N369.59 billion), with a bid-to-offer ratio of 2.3x (previous: 3.1x). Eventually, the DMO allotted instruments worth N211.15 billion across the two tenors, resulting in a bid-to-cover ratio of 1.3x.
We reiterate our forecast for a sustained rise in yields in the short term driven by the hawkish stance by the monetary policy authorities and sustained imbalance in the demand and supply dynamics.
The Treasury bills secondary market traded with mixed sentiments this week as the average yield across all instruments declined by 3bps to 26.5%.
Across the market segments, the average yield remained unchanged at 25.7% in the NTB segment but expanded by 6bps to 27.3% in the OMO segment.
We anticipate that the liquidity influx into the system next week will likely drive demand for instruments, causing a decline in yields in the secondary market.
Meanwhile, the overnight (OVN) rate declined by 58bps w/w to 32.3% as inflows from contractor payments (N450.00 billion), FAAC disbursements (N400.00 billion), and FGN bond coupons (N9.52 billion) outweighed debits for the FGN bond PMA (N263.21 billion), supporting system liquidity.
Accordingly, the average liquidity for the week improved, settling at a net short position of N867.73 billion (vs net short position of N1.14 trillion in the prior week).
Barring any liquidity management measures by the CBN next week, we expect the inflows from FAAC disbursements (N700.00 billion), FGN bond coupons (216.76 billion), and OMO maturities (N10.00 billion) will further boost system liquidity, causing the OVN rate to temper from current levels.
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