…Overnight (OVN) rate contracted by 826bps w/w to 16.3%, as the system liquidity was supported by inflows from FAAC disbursement
SAT, DEC 02 2023-theGBJournal|Trading in the Treasury bonds secondary market turned bullish this week, underpinned by bargain hunting for short-dated instruments.
As a result, the average yield across all instruments contracted by 22bps to 15.7%.
Across the benchmark curve, the average yield declined at the short (-98bps) end following demand for the JAN-2026 (-196bps) bond but was unchanged at the mid and long segments.
Over the short term, we expect yields in the FGN bonds secondary market to trend higher, driven by the sustained imbalance in the demand and supply dynamics.
The FGN Eurobonds closed the week on a bullish note also, despite a mid-week selloff triggered by the US PCE data indicating an expected dip in inflation to 3.50% from the previous level of 3.70%.
Increased demand, fueled by the US Q3 GDP figures at 5.20% (versus the previous level of 4.90%) and dovish remarks by some FED speakers anticipating a rate cut early next year, led to improved demand.
Consequently, the average benchmark yield ended the week with a 20 bps decrease, settling at 10.52%.
Meanwhile, proceedings in the Treasury bills secondary market remained bullish this week as market players continued to demand bills with attractive yields across the curve.
Consequently, the average yield across the market declined by 2bps to 10.9%. Across the market segments, the average yield pared by 1bp to 10.5% in the NTB secondary market and declined by 4bps to 14.6% in the OMO segment.
Next week, Analysts at Cordros Research say they envisage higher yields in the T-bills secondary market, following our expectation of tight liquidity.
In addition, the DMO is scheduled to hold an NTB PMA on Wednesday (06 December), where it will roll over maturities worth N104.36 billion.
At the money market, just as envisaged, the overnight (OVN) rate contracted by 826bps w/w to 16.3%, as the system liquidity was supported by inflows from FAAC disbursement (N583.60 billion) and FGN bond coupon payments (N5.63 billion) even as DMBs continued depositing excess funds at the CBN’s Standing Deposit Facility window.
Accordingly, the average system liquidity closed at a lower net long position of N217.75 billion (vs a net long position of N341.67 billion in the prior week).
We believe system liquidity might be pressured next week, following the possibility of (1) a net NTB issuance at the Wednesday auction and (2) banks’ increased usage of the SDF window. Thus, we anticipate the OVN rate might trend upwards from current levels.
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