SAT, 06 AUG, 2022-theGBJournal|The overnight (OVN) rate was unchanged at 15.0%, reflective of the unhealthy balance in system liquidity amid inflows from FAAC disbursement (c. NGN480 billion). We highlight that funding conditions this week averaged a net long position of NGN92.45 billion this week (vs a net short position of NGN138.48 billion in the previous week).
We expect the OVN to remain elevated in the coming week, as the expected inflow from OMO maturities (NGN5.00 billion) may not be enough to saturate the liquidity in the system.
Treasury bills
The tight liquidity in the financial system continued to drive bearish sentiments in the Treasury bills secondary market this week, as the average yield across all instruments expanded by 29bps to 8.5%. Across the segments, average yield increased by 147bps and 29bps to 10.0% and 7.6% at the OMO and NTB secondary markets, respectively.
Following the relatively lower inflows expected in the system next week, we expect bearish sentiments to continue to pervade the T-bills market and drive yields higher. Also, we expect market focus to be shifted to the NTB PMA holding on Wednesday (10 August), with the CBN expected to roll over NGN150.62 billion worth of instruments.
Bonds
Activities in the FGN bonds secondary market remained bearish as the sell-offs of instruments across the curve persisted this week. Thus, the average yield across instruments inched higher by 29bps to close at 12.3%.
Across the benchmark curve, the short (+9bps), mid (+36bps), and long (+43bps) dated instruments bore the impact of the sell-offs as investors took profits off the MAR-2024 (+18bps), FEB-2028 (+59bps), and JUL-2045 (+151bps) bonds, respectively.
We maintain our view of an upward repricing of FGN bonds in the medium term, as both the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.
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