SAT, 31 OCT, 2020-theGBJournal-The overnight (OVN) rate ended the week lower, as it crashed by 8.50 ppts w/w, to 1.3%. The contraction was underpinned by inflows into the system from OMO maturities (NGN336.09 billion) and FGN bond coupon payments (NGN160.32 billion) which subdued outflows for CBN’s weekly OMO and FX auctions.
Next week, we expect the OVN rate to expand, as the NGN224.45 billion expected from OMO maturities may not be sufficient to offset funding pressure in the week.
Just as predicted last week, activities in the Treasury bills secondary market slowed due to the rock bottom yields in the market, and as market participants shifted their focus to the NTB PMA that held on Wednesday.
Consequently, the average yield across all instruments expanded by 5bps to 0.5%. Across the segments, the average yield on instruments in the OMO market was flat at 0.5%, and expanded by 12bps to 0.5% at the NTB secondary market, as a result of the preceding factors.
At Wednesday’s PMA, the CBN offered bills worth NGN154.38 billion with allotments of NGN7.50 billion of the 91-day, NGN6.00 billion of the 182-day and NGN140.87 billion of the 364-day – at respective stop rates of 0.34% (previously 1.00%), 0.50% (previously 1.00%), and 0.98% (previously 2.00%).
We expect investors to remain wary of T-bills at this level, thus we expect yields to remain rangebound, as demand for instruments in the space slows.
The Treasury bonds secondary market remained bullish, as investors re-invested the excess liquidity from OMO maturities and FGN bond coupons. Liquidity in the market was thin as very few sellers were willing to take profit.
Consequently, the average yield across instruments contracted by 16bps to 4.1%. Across the benchmark curve, most investors were keen on short (-31bps) tenor instruments, as they bought up the JAN-2022 (-78bps) and APR-2023 (-55bps) bonds.
Further down the curve, average yield also declined at the mid (-6bps) and long (-13bps) segments, as buying interests were recorded on the FEB-2028 (-56bps) and MAR-2036 (-25bps) bonds, respectively.
Cordros Research analysts say they expect trading in the Treasury bonds secondary market to remain bullish, as FGN bonds represent the only preferable alternative for fixed income investing.
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