SUN 19 DEC, 2021-theGBJournal- The Treasury bonds secondary market traded on a mixed note by week’s end, although with a bullish bias, as investors remained on the sidelines but continued to cherry-pick instruments across the curve. Consequently, the average yield declined slightly by 2bps to 11.6%.
Across the benchmark curve, the average yield contracted at the short (-11bps) end as investors increased their demand for the APR-2023 (-58bps) bond, but expanded at the mid (+1bp) and long (+3bps) segments following sell pressures on the JUL-2030 (+3bps) and APR-2037 (+19bps) bonds, respectively.
At the bond auction, the DMO offered instruments worth NGN100.00 billion to investors through re-openings of the 12.5000% FGN JAN 2026 (Bid-to-offer: 10.5x; Stop rate: unchanged at 11.65%) and 16.2499% FGN APR 2037 (Bid-to-offer: 2.1x; Stop rate: 13.10% – previously 12.95%) bonds.
Despite the significant level of demand (subscription: NGN132.61 billion; bid-to-offer: 1.3x), the DMO eventually under-allotted instruments worth NGN98.80 billion, resulting in a bid-to-cover ratio of 1.3x.
In the short term, we expect yields to oscillate around current levels, driven by thin maturities and deliberate efforts by the DMO to reduce domestic borrowing costs for the government.
Also, we expect non-bank liquidity to be geared towards relatively higher non-sovereign instruments, thus tempering demand.
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