…Overnight rate expanded by 275 bps w/w to 4.3%
…Apprehension for yields dominates T-bills market
SAT, 05 DEC, 2020-theGBJournal- The Treasury bond secondary market retraced this week, as investors’ sentiment turned bearish due to a combination of re-pricing due to the rumours that the CBN special bills would be issued at a yield significantly above the current market level, as well as a decline in daily demand due to the low yields available.
Consequently, the average yield expanded by 20bps to 4.1%. Also, duration apathy resurfaced across the benchmark curve, as the average yield at the short (-10bps) end declined, following interest in the MAR-2025 (-44bps) bond. Further down the curve, average yield expanded at the mid (+37bps) and long (+18bps) segments, due to profit-taking on the NOV-2029 (+68bps) and APR-2037 (+129bps) bonds, respectively.
We expect the slow demand witnessed in the Treasury bonds secondary market to persist, as investors close round up their investing activity for the year. Regardless, we expect sizeable demand at the bond auction for December.
At the Treasury bills secondary market, trading sentiment was bearish, as investors’ apprehension for yields at this level persisted.
As a result, the average yield across both market segments expanded by 5bps to 0.2%. Most of the activity, albeit minute, in the T-bills market this week occurred at the OMO segment, with the average yield in the space expanding by 8bps to 0.2%.
We note that participants in that space prefer to stay on the sideline and wait for another primary market auction from the CBN, due to the low supply in the market. In the same vein, the NTB side of the market traded quietly, with the average yield in the segment expanding slightly by 2bps to 0.1%.
In the coming week, we expect the minimal activity in the T-bills secondary market to persist as participants await the issuance of the CBN’s special bills. Also, we expect market participants at the NTB segment to shift their focus to the PMA on Wednesday, where the CBN will be rolling over NGN50.93 billion worth of maturing bills.
The overnight (OVN) rate expanded by 275 bps w/w, to 4.3%. The rate was depressed for most of the week following an improvement in net liquidity position (averaged NGN536.97 billion this week; last week: NGN326.89 billion) as inflows into the system for OMO maturities (NGN341.10 billion) and FX retail refunds saturated the market. The eventual expansion in the funding rate was caused by debits for CRR and CBN’s weekly auctions at the latter part of the week.
We expect the OVN rate to trend southwards next week, as the system is further supported by inflows for OMO maturities (NGN294.12 billion).-With Cordros Research
Twitter-@theGBJournal|email: info@govandbusinessjournal.com.ng
