SAT, 30 JULY, 2022-theGBJournal| Bearish sentiments continued to dominate the Treasury bills secondary market this week as illiquidity in the financial system drove sell-offs across the market. As a result, the average yield across all instruments expanded by 53bps to 8.1%.
Across the segments, average yield increased by 68bps and 48bps to 9.6% and 7.7% at the OMO and NTB secondary markets, respectively. The CBN held its bi-weekly NTB PMA on Wednesday, offering NGN264.28 billion worth of bills – NGN2.22 billion of the 91-day, NGN3.54 billion of the 182-day, and NGN258.53 billion of the 364-day – to prospective investors.
As in the previous auction, the CBN allotted precisely what was offered at respective stop rates of 2.80% (previously 2.75%), 4.10% (previously 4.00%), and 7.00% (unchanged).
Next week, we expect the yields on T-bills to moderate slightly, following the inflows expected to hit the system.
Proceedings in the FGN bonds secondary market remained bearish this week as investors sold off positions across the curve in anticipation of an upward repricing of FGN bonds following the FGN 4M-22 fiscal performance.
As a result, the average yield across instruments expanded by 9bps to 12.0%. Across the benchmark curve, the average yield expanded at the short (+11bps), mid (+12bps), and long (+5bps) instruments following profit-taking on the JAN-2026 (+35bps), NOV-2029 (+17bps), and MAR-2050 (+34bps) bonds, respectively.
We maintain our view of an uptick in bond yields in the medium term, as both the FGN’s borrowing plan for 2022FY and the expected fiscal deficit point towards an elevated supply.
This week, the overnight (OVN) rate was unchanged at 15.0%, as the funding conditions in the system remained poor, averaging a net short position of N138.48 billion this week (vs a net short position of N135.74 billion in the previous week).
We expect the OVN rate to trend southwards in the coming week, as a combined NGN485.00 billion comes into the system from FAAC disbursements (c. N480.00 billion) and OMO maturities (N5.00 billion).
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