SAT 09 JAN, 2021-theGBJournal- The Treasury bonds secondary market opened the year with bearish trading, as the lack of clarity on the direction of yields in the short term weakened demand.
Consequently, the average yield expanded by 32bps to 6.1%. Across the benchmark curve, most of the sell-offs occurred at the tail end of the curve, highlighting investors’ uncertainty in the market.
Precisely, average yield at the long end expanded by 48bps, following major profit-taking on the MAR-2035 (+94bps) and APR-2037 (+79bps) bonds. Average yield also expanded at the short (+2bps) and mid (+35bps) segments as investors sold off the MAR-2024 (+13bps) and FEB-2028 (+85bps) instruments, respectively.
We expect FGN bond yields to sustain trading at current yield levels ahead of the publication of the FGN bond issuance calendar for Q1-21 by the DMO.
The overnight (OVN) rate expanded by 850bps w/w, to 9.3% as outflows for CRR debits (NGN600.00 billion) and CBN’s weekly OMO (NGN60.00 billion) and FX auctions offset inflows from OMO maturities (NGN438.74 billion).
In the coming week, inflows from OMO maturities (NGN211.25 billion) and FGN bond coupon payments (NGN40.68 billion) are expected to hit the system. Consequently, we expect the OVN rate to trend southwards.
Treasury bills
The first trading week of the year in the Treasury bills secondary market was bearish, as investors remained apprehensive on the direction of monetary policy and the interest rate environment. Thus, average yield across all instruments expanded by 13bps to 0.7%. Across the market segments, average yield expanded by 27bps to 0.6% at the OMO segment, as participants were more interested in the fresh supply from the primary market.
At the OMO auction, the CBN offered instruments worth NGN60.00 billion with allotments of NGN10.00 billion of the 96-day, NGN10.00 billion of the 180-day and NGN40.00 billion of the 362-day – at respective stop rates of 1.51% (previously 1.56%), 4.34% (previously 4.39%), and 5.74% (previously 5.80%).
Elsewhere, retail demand spurred sentiments at the NTB segment, as average yield declined by 4bps to 0.4%.
We expect reduced activity in the T-bills secondary market as current yields on offer remain unattractive, and as market participants anticipate higher yields at next week’s NTB PMA; the CBN is expected to offer NGN232.36 billion worth of instruments. -With Cordros Research.
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