…Debt Management Office (DMO) is set to offer instruments worth N360.00 billion
…T-bills secondary market equally stayed bearish in the week as investors took profits on positions across the curve.
SAT, JAN 27 2024-theGBJournal|The Treasury bonds secondary market stayed bearish this week, as market players seemingly opened short positions ahead of the January 2024 bond PMA.
This is reaction to the release of the auction calendar by the DMO, which showed that all re-openings for the quarter would be on short to mid-tenor bonds.
Consequently, the average yield advanced by 24bps to 13.6%. Across the benchmark curve, the average yield expanded at the short (+13bps), mid (+23bps) and long (+34bps) segments as investors sold off the MAR-2027 (+78bps), JUN-2032 (+50bps) and JUN-2037 (+78bps) bonds.
It is believed that the outcome of this month’s FGN bond auction holding on Monday (29 January) will influence the sentiments in the secondary market in the coming week.
At the auction, the Debt Management Office (DMO) is set to offer instruments worth N360.00 billion through re-openings of the 16.29% FGN MAR 2027, 14.55% FGN APR 2029, 14.70% FGN JUN 2033 and 15.45% FGN JUN 2038 bonds.
Nonetheless, based on our analysis of the factors expected to influence market direction in 2024E – such as monetary policy stance globally and domestically and sustained imbalance in the demand and supply dynamics – we anticipate yields in the FGN bonds secondary market will trend upwards in the medium term.
Meanwhile, the T-bills secondary market equally stayed bearish in the week as investors took profits on positions across the curve.
As a result, the average yield across all instruments expanded by 286bps to 7.0%. Across the market segments, the average yield advanced by 333bps to 6.7% in the NTB segment but pared by 1bp to 8.4% in the OMO secondary market.
At this week’s NTB auction, the apex bank offered instruments worth N231.82 billion – N7.85 billion of the 91-day, N6.44 billion of the 182-day, and N217.53 billion of the 365-day bills – to participants.
Total subscription at the auction settled at N1.09 trillion (bid-to-offer: 4.7x), with more demand skewed towards the longer-dated bill (N1.04 trillion).
The auction closed with the CBN allotting precisely what was offered at respective stop rates of 5.00% (previously 2.44%), 7.15% (previously 4.22%), and 11.54% (previously 8.40%).
At the Money market, the overnight (OVN) rate contracted by 442bps w/w to 18.8%, as the inflows from the FGN bond coupon payments (N216.59 billion) and CRR refunds (c. N240.00 billion) supported financial system liquidity.
Against the preceding, system liquidity settled higher at a net long position of N487.45 billion (vs a net long position of N334.16 billion in the previous week).
Next week, we envisage the OVN rate will likely decline further following inflows from FAAC disbursements (N743.13 billion) which should offset the impact of the debits for this month’s FGN bond (N360.00 billion) auction holding on Monday.
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