SAT, 28 NOV, 2020-theGBJournal- The bond secondary market remained bullish this week, as average yield declined by 12bps to 3.9%. We attribute the bullish performance to (1) CBN’s dovish stance at the MPC meeting this week, and (2) the further decline in stop rates at the NTB auction. Across the curve, average yield contracted at the short (-22bps), mid (-7bps) and long (-10bps) segments, following demand for the JAN-2022 (-83bps), MAR-2027 (-16bps) and APR-2049 (-35bps) bonds, respectively.
Considering the low level of yields at the Treasury bills market, we still expect investors to meet their fixed income investing needs in the Treasury bonds secondary market.
Meanwhile, with little to no activity occurring in the amidst the low yields on offer, the Treasury bills secondary market traded with mixed sentiments, albeit with a bullish tilt, as average yield across both market segments pared by 2bps to 0.1%. Across the segments, average yield declined by 3bps to 0.1% at the OMO segment, and by 1bp to 0.1% at the NTB secondary market, as investors covered for lost bids at the NTB PMA. At the PMA, the CBN offered bills worth NGN150.60 billion with allotments of NGN20.37 billion of the 91-day, NGN19.16 billion of the 182-day and NGN111.07 billion of the 364-day – at respective stop rates of 0.02% (previously 0.004%), 0.09% (previously 0.15%), and 0.15% (previously 0.30%).
We maintain our outlook of suppressed activity in the T-bills secondary market, given the still unimpressive yields in the space.
The overnight (OVN) rate contracted by 283 bps w/w, to 1.5%. The rate maintained its downward trajectory through the week, before rising slightly on Friday, as inflows for OMO maturities (NGN113.06 billion) boosted the net liquidity position (average: NGN326.89 billion) and offset funding pressures from the CBN’s weekly FX auctions.
In the coming week, inflows from OMO maturities (NGN418.92 billion) are expected to hit the system. Barring any significant mop-ups by the CBN, we expect the OVN to remain depressed.
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