SAT 29 JAN, 2022-theGBJournal- Trading in the Treasury Bonds secondary market was bearish following the expiry of the JAN-2022 bond that resulted in a higher average yield, although there was increased demand at the belly of the curve amid the improved liquidity from the maturing bond.
Consequently, the average yield expanded by 23bps to 11.6%. Across the benchmark curve, the average yield expanded at the short (+118bps) end but declined at the mid (-48bps), and long (-2bps) segments as buying activities increased on the NOV-2029 (-54bps) and MAR-2035 (-20bps) bonds, respectively.
In the medium term, we expect frontloading of significant borrowings for the year to result in an uptick in bond yields as investors demand higher yields in the face of elevated supply.
At the money market, the overnight (OVN) rate declined by 14.00ppts w/w to 1.3%, as inflows from the maturing JAN-2022 bond (NGN605.31 billion), FAAC disbursements (NGN420.37 billion), OMO maturities (NGN110.00 billion), and FGN bond coupon payments (NGN49.61 billion) saturated the system and outweighed funding pressures for net NTB issuances (NGN94.42 billion) and CBN’s weekly auctions – FX and OMO (NGN40.00 billion).
Next week, we expect the CBN to mop up the pent-up liquidity in the market. Thus, we envisage an expansion in the OVN rate to double-digit levels.
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