SAT, 15 OCT, 2022-theGBJournal| The Treasury bills secondary market closed with mixed sentiments, albeit with bullish bias, as the average yield across all instruments pared by 1bp to 7.9%.
We attribute this performance to participants moving to the secondary market to cover for lost bids at the NTB PMA. Across the segments, the average yield contracted by 2bps and 1bp to 10.3% and 7.3% at the OMO and NTB secondary markets, respectively.
At Wednesday’s NTB PMA, the CBN offered bills worth N190.89 billion – N14.27 billion of the 91-day, N25.56 billion of the 182-day, and N151.06 billion of the 364-day – to market participants.
That said, demand at the auction was skewed toward the long-dated bond, although the total subscription level settled lower at N111.94 billion (bid-to-offer 0.6x).
Eventually, the CBN allotted N34.82 billion worth of bills to participants at respective stop rates of 6.47% (previously 6.49%), 7.90% (previously 7.50%), and 13.00% (previously 12.00%).
Following the thin inflows expected in the system next week, we anticipate a low demand for T-bills and a slight expansion in yields from current levels.
Bonds
Bearish sentiments persisted in the FGN bonds secondary market this week, as the average yield expanded by 21bps to 13.7%. We attribute this bearish sentiment to sell-offs across the mid and long spectrums as investors reacted negatively to the Finance Minister’s debt restructuring comments and took positions in anticipation of the October 2022 bond auction scheduled to hold next week Monday.
Across the benchmark curve, the average yield contracted at the short (-3bps) end as investors demanded the MAR-2025 (-34bps) bond, but expanded at the mid (+50bps) and long (+18bps) segments, following the profit-taking activities on the NOV-2029 (+53bps) and JAN-2042 (+55bps) bonds, respectively.
We expect the outcome of the FGN auction holding on Monday (17 October) to shape the sentiments in the Treasury bond secondary market next week. At the auction, the DMO will offer instruments worth N225.00 billion through re-openings of the 14.53% FGN APR 2029, 12.50% FGN APR 2032 and 16.2499% FGN APR 2037 bonds.
Notwithstanding, in the medium term, we maintain our view of an uptick in bond yields, as both the FGN’s borrowing plan for 2022FY and the expected fiscal deficit point towards an elevated supply.
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