SAT 30 JAN, 2021-theGBJournal- Activities in the Treasury bonds secondary market were bearish, as investors traded cautiously in keen expectation of the MPC’s decision and became wary of an anticipated rise in yields due to the higher stop rates at the NTB auction.
Consequently, average yield expanded by 97bps to 8.1%. Across the benchmark curve, there were major selloffs in the APR-2023 (+241bps), FEB-2028 (+74bps) and MAR-2050 (+171bps) bonds, which caused expansions in the average yield across the short (+100bps), mid (+63bps) and long (+131bps) segments.
In the coming week, analysts at Cordros Research say expect the strong profit-taking witnessed since the start of the year to subside, following the MPC’s dovish bias. In the longer term, we still expect yields in the bonds secondary market to temper at least through the first quarter of the year, given the limited supply amidst significant inflows from OMO maturities (c. NGN2.34 trillion) and FGN bond coupon payments (c. NGN500.00 billion).
Money market
The overnight (OVN) rate expanded by 50bps w/w, to 11.0%, as outflows for the FG’s statutory remittances (c. NGN200.00 billion) and CBN’s weekly FX and OMO (NGN145.00 billion) auction debits outweighed inflows from OMO maturities (NGN190.15 billion) and FGN bond coupon payments (NGN87.29 billion).
We expect the OVN to return to single-digit territory in the coming week, following inflows from OMO maturities (NGN190.15 billion).
Treasury bills
In line with our expectation, bearish sentiments pervaded the Treasury bills secondary market as average yield across all instruments expanded by 63bps to 1.4%. The market was pressured by the tight liquidity in the system, as participants sold off on positions to fund their cash obligations.
Furthermore, trading bias was tilted to the negative following a couple of mismatched trades from traders who remained firmly offered on shorter-dated bills against the longest dated instruments that buyers preferred. At the OMO segment, offshore investors continued to sell off bills in anticipation of higher yields at the primary market.
Thus, the average yield in the segment expanded by 74bps to 1.7%. In the same vein, average yield at the NTB segment expanded by 53bps to 1.1%, as the market reacted to the outcome of the NTB auction on Wednesday. At the auction, the CBN offered bills worth NGN187.29 billion with allotments of NGN11.39 billion of the 91-day, NGN47.48 billion of the 182-day and NGN123.11 billion of the 364-day – at respective stop rates of 0.55% (previously 0.50%), 1.30% (previously 1.00%), and 2.00% (previously 1.50%).-With Cordros Research
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