SAT, NOV 25 2023-theGBJournal|Proceedings in the Nigerian Treasury bills secondary market remained bullish this week, as the average yield contracted by 206bps to 10.9%.
Notably, this week’s performance is attributable to the combined impact of the improved system liquidity and market participants moving to the secondary market to compensate for lost bids at Wednesday’s NTB PMA.
Across the market segments, the average yield declined by 225bps to 10.5% in the T-bills secondary market and contracted by 4bps to 14.7% in the OMO segment.
At this week’s NTB auction, the DMO offered bills worth N211.71 billion – N9.96 billion of the 91-day, N1.82 billion of the 182-day, and N199.93 billion of the 364-day – to market participants.
Demand at the auction settled higher at N1.23 trillion (previously: N875.79 billion | bid-to-offer: 5.8x), especially for the 364-day bill (N1.21 trillion | 98.2% of the total subscription).
Eventually, the DMO over-allotted across all tenors with total sales of N561.71 billion – N11.96 billion for the 91-day, N9.30 billion for the 182-day, and N540.45 billion for the 364-day – at respective stop rates of 8.00% (previously: 7.00%), 12.00% (previously: 11.00%), and 16.75% (previously: 16.75%).
We envisage sustained demand in the NTB secondary market next week, supported by our expectation of a buoyant system liquidity. Thus, we expect yields to maintain the current downward trend.
Bonds
This week, sentiments in the FGN bonds secondary market were bearish, as the average yield across all instruments expanded by 18bps to 15.9%.
Across the benchmark curve, the average yield contracted at the short end (-38bps) due to demand for the MAR-2024 (-193bps) bond but advanced at the mid (+54bps) and long (+22bps) segments, following the profit-taking activities on the APR-2029 (+57bps) and JUL-2035 (+58bps) bonds, respectively.
Over the short term, we expect higher yields in the FGN bonds secondary market, driven by the sustained imbalance in the demand and supply dynamics.
This week, the overnight (OVN) rate expanded by 238bps to 24.6%, as debits for net NTB issuances (N350.00 billion) offset the inflows from FGN bond coupon payments (N17.87 billion).
However, the average system liquidity settled at a net long position of N341.67 billion (vs a net long position of N17.31 billion in the prior week), highlighting the impact of banks’ lending from the CBN’s Standing Lending Facility (SLF).
Next week, we expect the inflows from FAAC allocation (N583.60 billion) and FGN bond coupon payments (N5.63 billion) to support system liquidity. Hence, barring any significant outflows, we anticipate the OVN rate will likely trend downwards, albeit still at double-digit levels.
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