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Bonds: DMO under-allotts instruments worth N137.97 billion following low demand, average yield contracts 7bps to close week at 12.1%

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SAT 24 JULY, 2021-theGBJournal- The Treasury bonds secondary market closed the week on a bullish note, as yields adjusted to reflect the lower rates at Monday’s auction, and market participants looked to the secondary market to fill unmet demand. Consequently, the average yield contracted by 7bps to 12.1%.

Across the benchmark curve, the average yield decreased at the short (-7bps), mid (-7bps) and long (-10bps) segments due to investor’s demand for the JAN-2026 (-17bps) and MAR-2027 (-12bps) and JUL-2034 (-39bps) bonds, respectively.

At the bond auction, the DMO offered instruments worth NGN150.00 billion to investors through re-openings of the 13.9800% FGN FEB 2028 (Bid-to-offer: 1.13x; Stop rate: 12.35%, previously: 12.74%), 12.4000% MAR 2036 (Bid-to-offer: 1.47x; Stop rate: 13.15%, previously: 13.50%) and 12.9800% FGN MAR 2050 (Bid-to-offer: 3.13x; Stop rate: 13.25%, previously: 13.70%) bonds. The demand was less however (subscription: NGN286.11 billion; bid-to-offer: 1.9x) compared to June’s auction (Subscription: NGN417.48 billion; Bid-to-offer: 2.8x).

The DMO eventually under-allotted instruments worth NGN137.97 billion, resulting in a bid-to-cover ratio of 2.1x.

In the coming week, we expect investors to take advantage of the increased supply in the market and realign their positioning on the yield curve in anticipation of further decline in bond yields.

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