SAT 25 DEC, 2021-theGBJournal- The overnight (OVN) rate expanded by 75bps w/w to 12.5%, following slight deteriorations in liquidity (average net system liquidity position this week: NGN85.70 billion vs last week: NGN99.09 billion) on the back of funding pressures for CBN’s weekly FX auction outweighing inflows from OMO maturities (NGN45.00 billion).
In the coming week, we expect the OVN rate to trend lower in the absence of significant funding pressures, amid expected inflow from FAAC disbursements and OMO maturities (NGN60.00 billion).
Treasury bills
The Treasury bills secondary market traded with bullish sentiments, reflecting the downward pressures on recently re-issued bills. Accordingly, the average yield across all instruments contracted by 5bps to 4.8%. Across the market segments, most of the yield decline was witnessed at the NTB segment (-4bps to 4.5%), while the OMO segment pared by 1bp to 5.5%.
In the coming week, we expect the outcome of the NTB auction to shape the direction of yields in the T-bills market. The CBN is set to roll over NGN17.59 billion worth of maturities to market participants at the auction.
Bonds
Though with a slight bearish bias, mixed trading persisted in the Treasury bonds secondary market following the sustained dearth in demand as investors preferred non-sovereign instruments. Consequently, the average yield expanded slightly by 1bp to 11.6%. Across the benchmark curve, the average yield closed higher at the short (+2bps) end following sell pressures on the JAN-2022 (+26bps) bond but remained unchanged at the mid and long segments.
For the rest of the year, we expect yields to oscillate around current levels, driven by thin maturities and deliberate efforts by the DMO to reduce domestic borrowing costs for the government. Also, we expect non-bank liquidity to be geared towards relatively higher non-sovereign instruments, thus tempering demand-With Cordros Research
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