SAT, 22 OCT, 2022-theGBJournal| The Treasury bonds secondary market ended this week on a bearish note as investors continued to reprice bonds upwards following the elevated interest rate in the environment and September CPI reading (20.77%).
As a result, the average yield expanded by 40bps to 14.1%, following profit-taking activities on the short (+83bps), mid (+31bps), and long (+10bps) spectrum of the curve. Precisely, sell-offs on the ARP-2023 (+325bps), NOV-2029 (+40bps), and APR-2037 (+38bps) bonds drove the week’s sentiments.
This week, the DMO conducted the October 2022 FGN bond PMA on Monday (17 October). At this auction, instruments worth NGN225.00 billion were offered to investors through the reopenings of the 14.55% FGN APR 2029 (Bid-to-offer: 0.1x; Stop rate: 14.50%), 12.50% FGN APR 2032 (Bid-to-offer: 0.2x; Stop rate: 15.00%) and 16.2499% FGN APR 2037 (Bid-to-offer: 1.3x; Stop rate: 16.00%) bonds.
Demand at the auction was low as total subscriptions across the offer instruments settled at N119.18 billion, with the DMO eventually allotting instruments worth N107.88 billion, resulting in a bid-cover ratio of 1.1x.
In the coming week, we believe the improved liquidity in the market following FGN bonds coupon payments will support investors’ demand and temper yields from current levels. Nonetheless, we maintain our stance of a sustained uptick in yields over the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
Meanwhile, the sustained illiquidity in the system drove another bearish sentiment in the Treasury bills secondary market during the week, as local banks sold off positions to meet their financial obligations.
Consequently, the average yield across all instruments expanded by 235bps to 10.3%. Across the segments, the average yield increased by 298bps to 10.3% at the NTB segment, but moderated by 2bps to 10.3% at the OMO secondary markets.
Next week, we expect yields in the T-bills secondary market to trend southwards, given the anticipated inflows in the system. Also, we believe participants will shift focus to next week’s NTB PMA, as the CBN is set to roll over NGN240.26 billion worth of maturities.
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