SAT, 21 MAY, 2022-theGBJournal | The bulls dominated the Treasury bonds secondary market as the average yield across instruments declined by 10bps to 11.2%. We attribute the bullish sentiment to investors covering for lost bids at the FGN bond auction which was held on Monday (16 May).
A total of 31,003 units valued at N33.165 million were traded this week in 11 deals compared with a total of 43,629 units valued at N48.535 million transacted last week in 33 deals.
At the auction, the DMO offered instruments worth NGN225.00 billion to investors through re-openings of the 13.53% MAR 2025 bond (Bid-to-offer: 1.7x; Stop rate: 10.0%), 12.50% APR 2032 (Bid-to-offer: 1.5x; Stop rate: 12.5%) and 13.00% JAN 2042 (Bid-to-offer: 4.5x; Stop rate: 13.0%) bonds.
Demand was moderate, with a subscription level of NGN575.62 billion, translating to a bid-to-offer ratio of 2.6x. The DMO eventually over-allotted instruments worth NGN378.41 billion (competitive allotments: NGN345.27 billion and non-competitive allotments: NGN33.15 billion), resulting in a bid-to-cover ratio of 1.5x.
Across the benchmark curve, the average yield contracted at the short (-2bps) and mid (-27bps) segments as investors sold off the MAR-2027 (-17bps) and NOV-2029 (-34bps) bonds, respectively; but expanded at the long (+2bps) end following investors’ profit-taking activities on the APR-2037 (+27bps) bond.
We maintain our view of an uptick in bond yields 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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