…Across the benchmark curve, the average yield increased at the mid-segment (+7bps) of the curve following selloffs of the FEB-2031 (+20bps) bond
SAT OCT 12 2024-theGBJournal| The Treasury bonds secondary market traded on a calm note this week, as the average yield inched higher by 2bps to 19.1%.
Across the benchmark curve, the average yield increased at the mid-segment (+7bps) of the curve following selloffs of the FEB-2031 (+20bps) bond, while it remained unchanged at the short and long segments.
Notably, moderate interest was observed on the MAR-2025 bond (-14bps) but was limited to retail sizes, causing the average yield to hold steady at the short end of the curve.
Analysts at Cordros Research attribute this to the weak naira liquidity, as evidenced by the bank’s excessive activities at the Central Bank of Nigeria’ (CBN) SLF window (N4.40 trillion).
Next week, Cordros say they expect pockets of demand as the recently published Q4-24 bond calendar indicates that the Debt Management Office (DMO) intends only to offer instruments worth N200.00 billion through re-openings of the 19.30% FGN APR 2029 and 18.50% FGN FEB 2031 bonds, while the FGN MAY 2033 bond is now off-the-run.
Meanwhile, we maintain our medium-term expectation of elevated yields consequent on anticipated monetary policy administration globally and domestically, and sustained imbalance in the demand and supply dynamics.
Meanwhile, the overnight (OVN) rate expanded by 23bps w/w to 33.0% as OMO auction (N905.23 billion) and FX swap debits dwarfed net inflows from OMO maturities (N54.45 billion), further pressuring system liquidity.
Thus, the average liquidity closed at a net short position of N651.32 billion (vs net short position of N174.26 billion in the prior week).
Barring any liquidity management measures by the CBN next week, we believe expected inflows from FGN bond coupon payments (N153.69 billion) will cause the OVN rate to trend lower.
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