SAT, 20 AUG, 2022-theGBJournal| Trading activities in the Treasury bills secondary market were mixed, albeit with a bearish tilt, as the average yield across all instruments expanded slightly by 1bp to 8.6%.
The bearish sentiments in the market was driven largely by the depressed system liquidity, which caused participants to sell off bills across the curve.
Across the segments, the average yield increased by 5bps to 11.2% at the OMO secondary markets, but contracted by 1bp to 7.9% at the NTB segment. That said, this week, an auction was held at the OMO segment, where the Central Bank of Nigeria (CBN) offered the market participants N50.00 billion worth of bills. However, the auction closed with no sale, and we suspect the high bid range across all tenors was responsible for this.
In the coming week, we expect the yields on T-bills to trend southward following the inflows expected in the system. Also, we expect the PMA holding next week Wednesday (24 August) to shape the direction of yields at the NTB segment, where the CBN will be rolling over NGN295.53 billion worth of maturing bills.
Bonds
This week, the FGN bonds secondary market continued in the bearish territory as investors re-priced bonds in reaction to the July CPI reading (19.64%) released Monday. As a result, the average yield across all instruments expanded by 13bps to 12.8%.
Across the benchmark curve, the average yield increased at the short (+8bps), mid (+8bps), and long (+18bps) ends as investors sold off the JAN-2026 (+44bps), NOV-2029 (+13bps), and MAR-2050 (+35bps) bonds, respectively.
At this month’s bond PMA, the DMO offered instruments worth NGN225.00 billion to investors through re-openings of the 13.53% MAR 2025 bond (Bid-to-offer: 0.3x; Stop rate: 12.50%), 12.50% APR 2032 (Bid-to-offer: 0.5x; Stop rate: 13.50%) and 13.00% JAN 2042 (Bid-to-offer: 2.4x; Stop rate: 14.00%) bonds.
Demand improved relative to the last auction, with a subscription level of NGN247.07 billion, translating to a bid-to-offer ratio of 1.1x (vs bid-to-offer: 0.6x in the previous auction). The DMO eventually allotted instruments worth NGN196.57 billion, resulting in a bid-to-cover ratio of 1.3x.
We maintain our stance 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 level over the rest of the year.
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