SAT NOV 02 2024-theGBJournal|Trading in the Treasury bonds secondary market remained bearish this week following sell pressures on short-dated bonds, specifically the MAR-2027 and APR-2029 bonds.
The average yield expanded by 18bps to 19.5%. Across the benchmark curve, the average yield expanded at the short (+47bps) end due to selloffs of the MAR-2027 (+109bps) bond but contracted at the mid (-7bps) and long (-8bps) segments due to interest in the FEB-2031 (-25bps) and JUN-2038 (-57bps) bonds, respectively.
We reiterate our forecast for a sustained rise in yields in the short term driven by the hawkish stance by the monetary policy authorities and sustained imbalance in the demand and supply dynamics.
In the Treasury bills secondary market, demand pressures eased on the last trading day, undermining the four consecutive days of bullish sentiments posted during the week.
As a result, the Treasury bills secondary market closed bearish week-on-week, as the average yield across all instruments increased by 9bps to 25.9%.
Across the market segments, the average yield advanced by 4bps to 24.2% in the NTB segment and increased by 11bps to 26.2% in the OMO segment.
Based on our outlook for a liquidity surfeit in the coming week, we expect yields in the Treasury bills secondary market to trend lower.
Additionally, the Central Bank of Nigeria (CBN) is scheduled to hold an NTB PMA next Wednesday (6 November), with N513.43 billion worth of maturing bills on offer.
At the money market, the overnight (OVN) rate contracted significantly by 10.46ppts w/w to 19.7%, underpinned by inflows from FGN bond coupon payments (N260.67 billion) and OMO maturities (N254.25 billion).
We note that this is the lowest print since February, which is also the last time the rate trended below the 20.0% mark, indicating strong liquidity in the financial system. Accordingly, the average liquidity for the week settled at a net long position of NGN390.67 billion (previous: net short position of NGN437.00 billion).
Next week, barring any significant mop-up activity by CBN, we still expect system liquidity to remain robust, leading to a likely contraction in the OVN rate.
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