SAT 09 APRIL, 2022-theGBJournal| The overnight (OVN) rate dipped by 4.42ppts w/w to 6.3%, as the system remained afloat with liquidity in the absence of any significant outflows from the system.
We expect a further tightening in the system liquidity in the coming week, as the outflows from Central Bank of Nigeria’s (CBN) weekly auctions (NTB, OMO, and FX) will most likely offset expected inflows from OMO maturities (N50billion). Hence, we envisage an expansion in the OVN rate from current levels.
Treasury bills
The Treasury bills secondary market maintained last week’s bearish sentiments following the sustained dearth in the demand for bills. Thus, the average yield across all instruments expanded by 5bps to 3.4%. Across the market segments, the average yield closed flat at 3.6% in the OMO segment but expanded by 6bps to 3.3% in the NTB segment.
Next 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 NGN141.26 billion worth of maturities to market participants at the auction.
Bonds
Similarly, the Treasury bonds secondary market traded with bearish sentiments, as the average yield expanded by 31bps w/w to 11.0%. Investors sold off various positions across the curve in anticipation of higher yields following the release of the Q2-22 FGN bonds issuance calendar.
For clarity, the DMO intends to raise c. N675.00 billion in Q2-22 – 50.0% increase from the NGN450.00 billion offered in Q1-22 – through reopening of the MAR-2025 and JAN-2042 bonds, and a new issue ten-year instrument (APR-2032).
Consequently, we observed profit-taking across the short (+6bps), mid (+47bps), and long (+32bps) segments of the benchmark curve, following sell-offs of the MAR-2027 (+44bps), JUL-2030 (+62bps), and JUL-2034 (+63bps) bonds, respectively.
We highlight that the increased FGN borrowing plan based on the Q2-22 bond calendar lends credence to our view of an elevated supply, in the face of thin liquidity. Thus, we reiterate our view of an uptick in bond yields in the medium term.
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