SAT 11 SEPT, 2021-theGBJournal- The overnight (OVN) rate expanded by 100bps w/w to 14.5% as funding pressures for net NTB issuances (NGN71.34 billion) and the CBN’s weekly OMO (NGN50.00 billion) and FX auctions outweighed the sole inflow from OMO maturities (NGN119.07 billion).
Next week, we expect the OVN rate to remain elevated, as debits for CRR and CBN’s weekly auctions are likely to offset inflows from FGN bond coupon payments (NGN100.67 billion) and OMO maturities (NGN38.00 billion).
Treasury bills
Trading in the Treasury bills secondary market turned bearish following market participants’ reaction to the increase in the stop rate of the long-dated instrument at Wednesday’s NTB PMA. Consequently, the average yield expanded by 18bps to 5.6%.
Across the market segments, the average yield expanded by 10bps and 30bps to 6.2% and 4.9% at the OMO and NTB segments, respectively.
At the bi-weekly NTB PMA, the CBN offered bills worth NGN138.17 billion and eventually allotted NGN209.50 billion – NGN4.94 billion of the 91-day, NGN11.88 billion of the 182-day and NGN192.68 billion of the 364-day bills – at respective stop rates of 2.50% (unchanged), 3.50% (unchanged), and 7.20% (previously 6.80%).
In addition, we highlight a lower subscription level at this auction (NGN256.12 billion; bid-to-offer ratio: 1.8x) compared to the last auction (NGN394.12 billion; bid-to-offer ratio: 2.5x).
Considering the current uncertainty created by the higher NTB PMA stop rate, we expect the result of next week’s NTB PMA to provide clarity and dictate the direction of yields. At the PMA, the CBN is set to roll over NGN161.79 billion worth of instruments.
Bonds
The Treasury Bonds secondary market traded with mixed sentiments, albeit with a bearish bias, following the higher NTB stop rates amid investors’ less aggressive cherry-picking activities. Consequently, the average yield expanded by 5bps to 11.1%.
Across the benchmark curve, the average yield declined at the short (-3bps) and mid (-4bp) segments following demand for the APR-2023 (-54bps) and MAR-2027 (-12bps) bonds, respectively.
However, it expanded at the long (+18bps) end as investors upwardly repriced the MAR-2036 (+48bps) bond.
In the coming week, we expect the market direction to be determined by the (1) outcome of the NTB auction, (2) MPC decision and (3) August inflation result (Cordros’ estimate: 16.95% y/y).
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