…Week-on-week, the FGN Eurobond average benchmark yields gained 30bps, settling at 9.87%
…the overnight (OVN) rate contracted to 32.0% (-43bps w/w), driven by the liquidity surfeit from last week coupled with inflows from Remita payments (c.NGN200.00 billion
SAT JULY 20 2024-theGBJournal| The FGN bonds secondary market remained bearish this week, driven by the disappointing June CPI data (+24bps to 34.19% y/y).
Consequently, the average yield expanded by 15bps to 19.4%.
Across the benchmark curve, the average yield advanced at the short (+22bps), mid (+21bps) and long (+7bps) segments following sell pressures on the MAR-2025 (+82bps), JUN-2033 (+80bps) and MAR-2050 (+68bps) bonds, respectively.
Analysts at Cordros Research say they believe the direction of yields in the secondary market will be shaped by the outcome of this month’s FGN bond auction holding on Monday (22 July).
At the auction, the Debt Management Office (DMO) is set to offer instruments worth NGN300.00 billion through re-openings of the 19.30% FGN APR 2029, 18.50% FGN FEB 2031 and 19.89% FGN MAY 2033 bonds.
Notwithstanding, we maintain our medium-term expectation of elevated yields consequent to anticipated monetary policy administration globally and domestically and sustained imbalance in the demand and supply dynamics.
The FGN Eurobond market displayed a bullish bias at the start of the week supported by Powell’s speech in which he highlighted the two-sided risks to interest rate decisions.
Although he didn’t specify the timing of the Federal Reserve’s actions on rates, he suggested that a rate hike is unlikely in the near term. However, there was a reversal of this trend as investors indulged in profit taking activities.
Furthermore, data this week showed that the United States Retail Sales for June remained flat while the initial jobless claims printed at 243K vs 230K expected and 223K prior. Week-on-week, the FGN Eurobond average benchmark yields gained 30bps, settling at 9.87%.
Meanwhile, the overnight (OVN) rate contracted to 32.0% (-43bps w/w), driven by the liquidity surfeit from last week coupled with inflows from Remita payments (c.NGN200.00 billion), FGN bond coupon payments (NGN65.36 billion) and OMO maturities (NGN16.00 billion).
Subsequently, the week’s average liquidity remained at a net long position, settling at NGN870.92 billion (previous: net long position of NGN1.44 trillion).
For next week, we envisage further moderation in the OVN rate as we believe the financial system will remain awash with liquidity.
For context, we expect the combined inflows from FAAC disbursements (NGN894.60 billion), FGN bond coupon payments (NGN216.59 billion) and OMO maturities (NGN44.00 billion) will offset the debits for FGN bond PMA (NGN300.00 billion) and a possible net issuance at the Wednesday NTB auction.
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