SAT, AUGUST 19 2023-theGBJournal |The NTB secondary market and the The FGN bonds secondary market traded on a bearish note this week.
Tight liquidity in the financial system triggered sell-offs across the curve. As a result, the average yield across all instruments increased by 106bps to 8.4%.
Across the curve, the average yield advanced at the short (+178bps), mid (+121bps) and long (+56bps) segments as investors sold off the 20DTM (+196bps), 97DTM (+147bps) and 223DTM (+251bps) bills, respectively.
Next week, we envisage lower yields in the Treasury bills secondary market as the anticipated inflows into the financial system will likely fuel bargain hunting in bills. Nonetheless, we expect market focus to be shifted to the NTB PMA holding on Wednesday (23 August), where the CBN is scheduled to roll over NGN303.22 billion worth of maturities.
The FGN bonds secondary market traded on a bearish note, as the average yield expanded by 31bps to 13.8%. Across the benchmark curve, the average yield advanced across the short (+46bps), mid (+24bps), and long (+20bps) segments due to the profit-taking activities on the JAN-2026 (+93bps), APR-2029 (+61bps), and JUN-2053 (+64bps) bonds, respectively.
At this month’s bond PMA, the DMO offered instruments worth N360.00 billion to investors through re-openings of the 14.55% FGN APR 2029 (Bid-to-offer: 0.2x; Stop rate: 13.85%), 14.70% FGN JUN 2033 (Bid-to-offer: 0.1x; Stop rate: 15.00%), 15.45% FGN JUN 2038 (Bid-to-offer: 0.6x; Stop rate: 15.20%), and 15.70% FGN JUN 2053 (Bid-to-offer: 2.7x; Stop rate: 15.85%) bonds.
Demand was lower across the four instruments as the total subscription level settled at N312.56 billion (vs N945.14 billion in the previous auction), with the DMO allotting bonds worth N230.26 billion (including non-competitive allotments of N2.50 billion), resulting in a bid-to-cover ratio of 1.4x.
We expect yields in the FGN bond secondary market to remain elevated in the medium term, driven explicitly by our expectation of a sustained imbalance in the demand and supply dynamics. However, we highlight that deliberate actions by the DMO to keep the cost of borrowing moderate remains a downside factor.
At the money market, In line with our expectations, the overnight (OVN) rate grew by 17.0% w/w to 19.8%, following the liquidity squeeze from settlements from the FGN bond auction (N230.26 billion) this week. As a result, the average system liquidity closed lower at a net long position of N175.63 billion (vs a net long position of N365.27 billion in the previous week).
We anticipate the OVN rate will trend lower next week, as we believe the inflow from FGN bond coupon payment (N112.67 billion) will help boost the liquidity in the system.
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