FRI 01 OCT, 2021-theGBJournal- At the money market, the overnight (OVN) rate contracted by 150bps w/w to 15.8%, as the liquidity surfeit from FAAC disbursements (NGN407.71 billion), OMO maturities (NGN101.61 billion) and FGN bond coupon payments (NGN40.77 billion) offset late debits for CRR, weekly FX auction and net NTB issuances (NGN3.54 billion).
In the absence of significant inflows next week, we expect the OVN rate to remain elevated in the double-digit region as funding for CBN’s weekly auctions are likely to drain system liquidity.
Treasury bills
Trading in the Treasury bills secondary market was bullish, as average yield across all instruments declined by 22bps to 5.8% following the healthy system liquidity in the early parts of the week, and as market participants sought to cover lost bids from Wednesday’s NTB PMA.
Across the market segments, the average yield contracted by 11bps to 6.3% at the OMO segment and by 32bps to 5.3% at the NTB segment.
At the NTB PMA, the CBN offered NGN111.87 billion for sale and eventually allotted NGN115.42 billion – NGN4.61 billion of the 91D, NGN2.09 billion of the 182D and NGN108.71 billion of the 364D bills with stop rates of 2.50% (unchanged), 3.50% (unchanged), and 7.50% (previously 7.20%), respectively. With a subscription level of NGN174.74billion, we highlight that demand was strong at this auction (Bid-cover ratio: 1.5x).
We expect yields to trend higher in the coming week, as investors react to the recent increases in auction stop rates at the primary market.
Bonds
The Treasury Bonds secondary market traded with mixed sentiments, albeit with bullish bias, as inflows from bond coupon payments supported demand levels despite sell pressures observed after the slight uptick in bond and NTB auction stop rates. Overall, the average yield pared by 3bps to 11.2%.
Across the benchmark curve, the average yield declined at the short (-28bps), mid (-3bps) segments following demand for the APR-2023 (-45bps) and MAR-2027 (-6bps), respectively. Elsewhere, it expanded at the long (+13bps) end as investors upwardly repriced the JUL-2045 (+54bps) bond.
In the face of reduced supply by the DMO, we maintain our expectations of lower average yields in the medium term as investors are likely to continue cherry picking attractive instruments across the yield curve.
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