SAT, 02 JULY, 2022-theGBJournal| The Treasury bills secondary market remained bearish this week due to the intertwined factors of persistent illiquidity in the system and participants selling off their positions on some short to mid-dated instruments. As a result, the average yield across all instruments expanded by 50bps to 5.4%.
Across the segments, average yield expanded by 60bps and 18bps to 5.4% and 5.3% at the NTB and OMO secondary markets, respectively. At this week’s NTB PMA, the CBN offered N174.09 billion – N13.88 billion of the 91-day, N2.16 million of the 182-day, and N158.04 billion of the 364-day – in bills.
Eventually, the CBN allotted N197.65 billion – N12.28 million of the 91-day, N17.16 billion of the 182-day and N168.21 billion of the 364-day bills – at respective stop rates of 2.40% (previously 2.49%), 3.79% (unchanged), and 6.07% (unchanged).
Next week, given our expectations of healthier system liquidity, we expect T-bills yields to decline from current levels in the face of improved demand.
This week, the Treasury bonds secondary market turned bearish as month-end sell-offs at the top of the week, and increasing investor apathy for yields at this level drove the average yield higher by 3bps to 11.2%. Across the benchmark curve, the average yield contracted at the short (-4bps) end following bargain hunting on the APR-2023 (-22bps) bond; but contracted at the mid (+6bps) and long (-6bps) segments as investors sold off the APR-2032 (+9bps) and JUL-2045 (+54bps) bonds, respectively.
We maintain our expectation of an uptick in yields in the medium term as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
This week, the overnight (OVN) rate remained in the double-digit region, staying flat at 14.0%, following the already tight system liquidity, which was further pressured by outflows for net NTB issuances (N23.56 billion), FX auction, and CRR debit in the absence of any significant inflows to the system.
We expect the OVN rate to trend southwards next week, as the system is saturated with inflows worth a combined N471.22 billion from FAAC disbursements (NGN451.22 billion) and OMO maturities (NGN20.00 billion).
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