SAT, 09 JULY, 2022-theGBJournal| The overnight (OVN) rate was unchanged at 14.0%, as the funding conditions in the system deteriorated further, with system liquidity closing the week in a net short position of N127.41 billion (vs a net short position of NGN168.26 billion in the prior week).
We expect the OVN rate to remain elevated in the coming week, as expected outflows for CBN’s auctions (NTB, FX & OMO) are likely to pressure the system further in the absence of any significant inflow into the financial system.
Treasury bills
The Treasury bills secondary market ended the week on a bearish note, as the average yield across all instruments expanded by 131bps to 6.7%. We attribute the bearish performance to the sustained sell-offs on short- and mid-dated bills as the dearth in liquidity persists. Across the segments, average yield expanded by 142bps and 98bps to 6.8% and 6.3% at the NTB and OMO secondary markets, respectively.
As we anticipate another liquidity squeeze, we expect T-bills yields to maintain their uptrend. Also, we expect quiet trading at the NTB segment as participants position for next week’s PMA, with NGN143.27 billion worth of maturities on offer.
Bonds
The Treasury bonds secondary market remained bearish this week as investors sold off positions across the curve in anticipation of an uptrend in bond market yield. As a result, the average yield across all instruments inched higher by 11bps to 11.3%.
Across the benchmark curve, short (+34bps), mid (+4bps) and long (+5bps) dated instruments were at the brunt of the sell-offs as investors took profit off the APR-2023 (+98bps), FEB-2028 (+10bps), and APR-2049 (+16bps) bonds, respectively.
We maintain our expectation of an uptick in FGN bond yields in the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
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