SAT, 11 JUNE, 2022-theGBJournal| In line with our expectations, the overnight (OVN) rate expanded by 700bps w/w to close at 14.0% as outflows for FX auctions and NTB net issuances (NGN15.37 billion) outweighed this week’s inflows and caused tighter liquidity in the system. For clarity, the average liquidity level for the week settled at NGN140.12 billion (vs NGN312.07 billion in the previous week).
For the coming week, we expect the system liquidity to be pressured further as the expected inflow from OMO maturities (NGN20.00 billion) is unlikely to saturate the financial system. Thus, we expect an expansion in the OVN rate in the coming week.
Treasury bills
Activities in the Treasury bills secondary market remained bearish as average yield across all instruments expanded by 13bps to 4.2%, due to the intertwining impact of the tight system liquidity and market participants shifting their focus to Wednesday’s NTB PMA.
Consequently, the average yield was higher by 16bps to 4.1% at the NTB segment and expanded by 3bps to 4.4% at the OMO segment. At this week’s NTB auction, the CBN offered NGN167.22 billion – NGN2.33 billion of the 91-day, NGN789.10 million of the 182-day, and NGN164.11 billion of the 364-day – in bills.
The CBN allotted NGN182.59 billion – NGN766.65 million of the 91-day, NGN1.94 billion of the 182-day and NGN179.89 billion of the 364-day bills – at respective stop rates of 2.50% (unchanged), 3.84% (previously 3.89%), and 6.44% (previously 6.49%).
Following our expectations of tighter system liquidity next week, we envisage a low demand for T-bills and thus, project a slight expansion in yields from current levels.
Bonds
The Treasury bonds secondary market started the week quietly. However, it turned bullish towards the end of the week as investors continued to cherry-pick bonds with attractive yields at the belly of the curve amid sell-offs on the short and long ends of the curve.
Consequently, the average yield across all instruments dipped by 3bps to close at 11.1%. Across the benchmark curve, the average yield expanded at the short (+6bps) and long (+1bp) ends following sell-offs of the MAR-2024 (+35bps) and JUL-2034 (+18bps) bonds, respectively; but contracted at the mid (-9bps) segment as investors demanded the NOV-2029 (-18bps) bond.
A total of 126,082 units valued at N129.123 million were traded this week in 14 deals compared with a total of 20,402 units valued at N21.440 million transacted last week 10 deals.
We maintain our view of an uptick in bond yields in the medium term, as both the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
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