SAT, 28 MAY, 2022-theGBJournal| Trading in the FGN bonds secondary market was bearish, as investors’ sell-offs in reaction to the MPC rate hike on Wednesday watered the gains recorded at the beginning of the week. Thus, the average yield across instruments expanded by 8bps to close at 11.2%. Across the benchmark curve, the average yield expanded at the short (+8bps), and long (+23bps) ends as investors sold off the JAN-2026 (+52bps) and MAR-2036 (+35bps) bonds, respectively; but contracted at the mid (-6bps) segment following buying interest on the NOV-2029 (-15bps) bond.
We believe the MPC’s rate hike will continue to drive aversion for long-dated bonds in the short term. Consequently, we reiterate 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.
Meanwhile, just envisaged, the overnight (OVN) rate expanded by 150bps w/w to 14.0%. The OVN rate was elevated all through the week as the system was pressured with funding for CBN’s auctions (OMO, NTB and FX) and offset inflows from OMO maturities (NGN30.00 billion) and FGN bond coupon payments (NGN9.37 billion).
Cordros Research analysts say they expect a moderation in the OVN rate due to our expectations of improved system liquidity, as inflows amounting to NGN425.63 billion flow into the system from FAAC disbursements (c. NGN400.00 billion), FGN bond coupon payments (NGN5.63 billion) and OMO maturities (NGN20.00 billion).
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