…Overnight rate contracted by 337 bps w/w
SAT, 12 DEC, 2020-theGBJournal- The Treasury bond secondary market reacted negatively to the unanticipated front-end supply from the CBN and the increase at the long end of the NTB PMA. Trading activity was low as demand thinned out.
Consequently, the average yield in the market expanded by 65bps to 4.7%. Across, the benchmark curve, average yield expanded at the short (+68bps), mid (+46bps) and long (+83bps) segments, due to profit-taking on the MAR-2025 (+202bps), FEB-2028 (+66bps) and JUL-2045 (+153bps) bonds, respectively.
Next week, we expect investors’ focus to be shifted to the PMA on Wednesday, as the DMO is set to offer instruments worth NGN60.00 billion through re-openings of the 12.50% MAR 2035 (amount on offer: NGN30.00 billion) and 9.80% JUL 2045 bonds (amount on offer: NGN30.00 billion). Nonetheless, we still expect some activity at the secondary market as investors cover lost bids at the auction, which is likely to be oversubscribed.
Treasury bills
The Treasury bills secondary market was bearish this week as investors anticipated the issuance of the CBN’s Special Bills. As a result, the average yield across all instruments expanded by 28bps to 0.4%. At the OMO and NTB segments, average yield expanded by 24bps and 32bps to 0.4% and 0.5%, respectively. On Wednesday, the CBN conducted its bi-weekly PMA, where it offered bills worth NGN50.93 billion with allotments of NGN4.41 billion of the 91-day, NGN7.82 billion of the 182-day and NGN38.70 billion of the 364-day – at respective stop rates of 0.01% (previously 0.02%), 0.60% (previously 0.09%), and 3.20% (previously 0.15%). The CBN on Thursday issued 81-day Special Bills in the form of FGN promissory notes worth c. N4.0trillion (of excess CRR) to local banks. The CBN issued the bills at a discount rate of 0.5%.
The issuance of the Special Bill should ease the uncertainty across the money market. However, trading in the T-bills market is likely to remain subdued amidst the relatively low yields on offer.
Money market
In line with our expectation, the overnight (OVN) rate contracted by 337 bps w/w, to 0.9%, as inflows from OMO maturities (NGN280.09 billion) outweighed outflows for the CBN’s weekly OMO (NGN70.00 billion) and FX auctions.
In the coming week, we expect the OVN rate to remain depressed, as inflows from OMO maturities (NGN337.64 billion) boost system liquidity.-With Cordros Research
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