SAT, 25 JUNE, 2022-theGBJournal| The bears continued to dominate the Treasury bills secondary market this week as the depressed system liquidity triggered sell-offs from local banks as they sought liquidity to fund their daily obligations.
Consequently, the average yield across all instruments expanded by 26bps to 4.9% – average yield inched higher by 59bps and 15bps to 5.2% and 4.8% at the OMO and NTB segments, respectively.
We still expect the average yield on T-bills to maintain its uptick next week, given the tight liquidity picture. Also, we expect quiet trading at the NTB market as participants’ position for next week’s PMA, with N174.09 billion worth of maturities on offer.
The Treasury bonds secondary market traded with bullish sentiments this week, as investors covered for lost bids at Monday’s PMA. As a result, the average yield across all instruments contracted by 5bps to 11.1%.
Across the benchmark curve, the average yield contracted at the short (-4bps), mid (-1bp), and long (-11bps) segments following buying interests in the MAR-2024 (-19bps), APR-2032 (-5bps), and APR-2037 (-28bps) bonds, respectively. A
t the primary auction, the DMO offered instruments worth N225.00 billion to investors through re-openings of the 13.53% FGN MAR 2025 (Bid-to-offer: 1.8x; Stop rate: 10.10%), 12.50% FGN APR 2032 (Bid-to-offer: 1.1x; Stop rate: 12.50%) and 13.00% FGN JAN 2042 (Bid-to-offer: 4.5x; Stop rate: 13.15%) bonds. Total subscriptions across the offered instruments settled at NGN552.36 billion, with the DMO eventually allotting instruments worth NGN259.28 billion, resulting in a bid-cover ratio of 2.5x.
We reiterate our view of an uptick in yields in the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
Meanwhile, in line with our expectations, the overnight (OVN) rate stayed in the double-digit region through the week. It eventually rose by 308bps w/w to close at 14.0% as system liquidity remained constrained. The system was pressured by debits for the FGN bond (N226.13 billion) and FX auctions in the absence of any significant inflows.
In the coming week, we expect the OVN rate to remain elevated, as outflows for CBN’s weekly auctions (OMO, FX and NTB) will likely keep system liquidity strained with no significant inflow expected.
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