…Overnight rate expanded by 50bps w/w to 15.3%
SAT 22 JAN, 2022-theGBJournal- Trading in the Treasury bonds secondary market was bullish, following the lower marginal rates at Wednesday’s auction, prompting investors to sustain the demand witnessed earlier in the week.
Consequently, the average yield declined by 10bps to 11.4%. Across the benchmark curve, the buying activities were widespread as the average yield contracted at the short (-46bps), mid (-5bps), and long (-5bps) segments following investors’ higher demand for the JAN-2022 (-238bps), FEB-2028 (-11bps) and MAR-2036 (-14bps) bonds, respectively.
At the bond auction, the DMO offered instruments worth NGN150.00 billion to investors through a re-opening of the 12.50% FGN JAN 2026 (Bid-to-offer: 1.5x; Stop rate: 11.50%, previously 11.65%) and a new issue of the 13.00% FGN JAN 2042 (Bid-to-offer: 2.9x; Stop rate: 13.00%) bonds.
As expected, demand was higher (subscription: NGN325.24 billion; bid-to-offer: 2.2x) than December’s auction (Subscription: NGN132.61 billion; Bid-to-offer: 1.3x). The DMO eventually over-allotted instruments worth NGN170.64 billion, resulting in a bid-to-cover ratio of 1.9x.
Next week, we envisage bond yields would settle lower as investors re-invest ample liquidity expected from the maturing JAN-2022 bond and coupon payments back into the market.
Nonetheless, in the short term, we expect frontloading of significant borrowings for the year to result in an uptick in bond yields as investors demand higher yields in the face of elevated supply.
Meanwhile, at the Money market overnight (OVN) rate expanded by 50bps w/w to 15.3% this week, in light of debits for CRR, the January bond auction settlement (NGN170.64 billion), and CBN’s weekly OMO (NGN20.00 billion) and FX auctions offsetting the inflows from OMO maturities (NGN128.18 billion) and FGN bond coupon payments (NGN105.17 billion).
Next week, we expect improved system liquidity and, by extension, moderation in the OVN rate, as inflows totalling NGN764.92 billion arising from the maturing JAN-2022 bond (NGN605.31 billion), FGN bond coupon payments (NGN49.61 billion) and OMO maturities (NGN110.00 billion) outweigh funding requirements.-With Cordros Research
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