SAT, 16 JULY, 2022-theGBJournal| This week, the overnight (OVN) rate was flat at 14.0% as the funding conditions in the system remained tepid, averaging this week with a net short position of N79.73 billion (vs a net short position of N127.41 billion in the previous week).
We expect the OVN rate to moderate slightly in the coming week, as a combined NGN191.86 billion – FGN bond coupon payments (NGN181.86 billion) and OMO maturities (NGN10.00 billion) – is expected to hit the system.
Treasury bills
Just as we envisaged, the tepid liquidity in the system this week underpinned another bearish performance in the Treasury bills secondary market as participants sold off instruments in both market segments to generate funds.
Thus, the average yield across all instruments expanded by 32bps to 7.0%. Across the segments, the average yield increased by 105bps and 9bps to 7.4% and 6.9% at the OMO and NTB segments, respectively. At Wednesday’s NTB auction, the CBN offered N143.27 billion – N4.51 billion of the 91-day, N1.46 billion of the 182-day, and N137.30 billion of the 364-day – in bills.
The auction closed with the CBN allotting precisely what was offered at respective stop rates of 2.75% (previously 2.40%), 4.00% (previously 3.79%), and 7.00% (previously 6.07%).
Next week, we expect improved demand for T-bills on the back of expected inflows to the system and (2) participants’ reaction to the increased yields of bills in the market.
Bonds
Proceedings at the Treasury bonds secondary market turned bearish this week as demand weakened following investors’ positioning ahead of next week’s bond auction. Consequently, the average yield across instruments expanded by 19bps to close at 11.5%. Across the benchmark curve, the average yield expanded at the short (+31bps), mid (+41bps), and long (+4bps) ends as investors sold off the MAR-2024 (+89bps), JUL-2030 (+54bps), and JAN-2042 (+20bps) bonds, respectively.
In the coming week, we expect the outcome of the July 2022 FGN auction holding on Monday (18 July) to shape the direction of yields in the bonds secondary market.
At the auction, the Debt Management Office (DMO) will offer instruments worth N240 billion through re-openings of the 13.53% FGN MAR 2025, 12.5000% FGN APR 2032 and 13.0000% FGN JAN 2042 bonds.
Nonetheless, we reiterate 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.
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