SAT, 19 NOV, 2022-theGBJournal| Sentiments in the Treasury bills secondary market turned bearish following the low liquidity in the system this week as participants exited positions across the curve to meet their financial obligations.
As a result, the average yield across all instruments expanded by 14bps to 10.5%. Across the segments, the average yield increased by 18bps to 10.6% at the NTB secondary market, but contracted by 2bps to 10.2% at the OMO segment.
Following the relatively slim system liquidity expected next week, we envisage low demand for T-bills and a slight expansion in yields from current levels. Also, we expect market focus to be shifted to the NTB PMA holding on Wednesday (24 November), with the CBN expected to roll over NGN213.43 billion worth of instruments.
Meanwhile, this week, the FGN bonds secondary market closed on a bullish note as the average yield across instruments contracted by 8bps to 14.4%.
This week’s bullish sentiment is attributed to investors looking to the secondary market to compensate for lost bids at the PMA.
Consequently, across the benchmark curve, the average yield expanded at the short (+4bps) end following profit-taking activities on the APR-2023 (+77bps) bond, but dipped at the mid (-8bps) and long (-16bps) segments as investors demanded the APR-2032 (-9bps) and APR-2049 (-39bps) bonds, respectively.
At Monday’s bond PMA, the DMO offered instruments worth N225.00 billion to investors through re-openings of the 14.55% APR 2029 bond (Bid-to-offer: 0.5x; Stop rate: 14.75%), 12.50% APR 2032 (Bid-to-offer: 0.5x; Stop rate: 15.20%) and 16.24% APR 2037 (Bid-to-offer: 3.6x; Stop rate: 16.20%) bonds.
Demand was higher across the three tenors as the total subscription level settled at N344.01 billion; however, demand at the auction was higher for the long-dated bond accounting for c. 78.4% of the total subscription level. As a result, the DMO eventually allotted instruments worth N269.22 billion, resulting in a bid-to-cover ratio of 1.3x.
We expect the outcome of the MPC meeting holding next week (21 & 22 November) to influence sentiments in the bonds market. Notwithstanding, in the medium term, we maintain our view of an uptick in bond yields, as both the FGN’s borrowing plan for 2022FY and the expected fiscal deficit point towards an elevated supply.
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