T- Bill Ends the Week Cold as Bonds Adjust to Lower Stop Rates
The Treasury bills secondary market extended its bearish run this week, as tight liquidity in the system persisted says Cordros Capital in a market report. Analysts’ market report show bonds adjusted to lower stop rates as yields repricing in the fixed income market slow down.
Cordros Capital investment analysts said consequent to this development, the average yield across all instruments expanded by 25 basis points to 8.3%.
Also, analysts added that across the market segments, the average yield at the open market operations (OMO) segment closed 6 basis points higher at 9.7% and similarly expanded by 54 basis points to 6.9% at the Nigerian treasury bills segment.
Notably, there was no open market operations (OMO) auction yesterday. In its market projection for the coming week, analysts at Cordros Capital maintain a view of a higher average yield on T-bills, given that they are expecting system liquidity to remain strained.
“We expect quiet trading at the Nigerian Treasury Bill market as participants position for next week’s primary market auction (PMA) with the CBN set to roll over N58.86 billion worth of maturities”, Cordros Capital said in the report.
In the money market, the overnight rate expanded by 375 basis points week on week to 23.0% as debits for cash reserve ratio, FGN bond (N325.80 billion) and FX auctions outweighed system inflows from Federal Accounts Allocations Committee disbursements (N363.86 billion) and OMO maturities (N15.00 billion).
Cordros analysts said in the report they are expecting system liquidity to remain tight and the OVN rate to trend northwards in the absence of any significant inflows to the system.
Bonds Adjusted to Lower Stop Rates
According to the report, the Treasury bonds secondary market closed the week on a bullish note, as yields adjusted to the lower stop rates at Wednesday’s Federal Government of Nigeria (FGN) bond auction.
Consequently, the average yield expanded by 7 basis points to 11.9%. Analysts stated that across the benchmark curve, the average yield decreased at the mid (-6bps) and long (-19bps) segments due to investor’s demand for the FEB-2028 (-23bps) and APR-2037 (-63bps) bonds, respectively.
However, it expanded at short (+3bps) end following sell-offs of the JUL-2021 (+15bps) bond.
At the bond auction during the week, the Debt Management Office (DMO) offered instruments worth N150.00 billion to investors through re-openings of the 16.2884% FGN MAR 2027 (Bid-to-offer: 1.23x; Stop rate: 12.74%), 12.5000% MAR 2035 (Bid-to-offer: 2.55x; Stop rate: 13.50%) and 12.9800% FGN MAR 2050 (Bid-to-offer: 4.48x; Stop rate: 13.70%) bonds.
“We note that the demand was stronger (subscription: N417.48 billion; bid-to-offer: 2.8x) compared to May (Subscription: N281.97 billion; Bid-to-offer: 1.9x)”.
Meanwhile, analysts reported that the DMO eventually allotted instruments worth N325.80 billion, resulting in a bid-to-cover ratio of 1.2x.
“We expect average yields to trend lower, as we expect investors to take advantage of the increased supply in the market and cherry-pick mid and long-dated bonds”, Cordros Capital projected.
In a related development, Naira drops at the investors’ window as foreign reserves continue to drop as capital control scares foreign investors away from Nigeria.
Nigeria’s external reserves sustained another decline, dipping US$215.62 million this week to $33.55 billion. Meanwhile, the naira depreciated by 0.2% to N411.67 at the Investors and Exporters Window (IEW) and parallel market, respectively.
At the Investors window, total turnover increased by 2.7% week to date to US$580.84 million, with trades consummated within the N401.00 – 420.80 to a dollar band.
In the forwards market, analysts indicate that rate depreciated across the 1-month (-0.3% to N413.10/$), 3-month (-0.4% to N417.16/$), 6-month (-0.5% to N422.19/$) and 1-year (-1.1% to N433.54/$) contracts.
“We expect improved liquidity in the IEW over the medium term, given our expectation of increased oil inflows in line with the rise in crude oil prices, and inflows from foreign currency borrowings.
“Accordingly, we expect the naira to remain relatively range-bound between N410.00 – N415.00 to a dollar at the IEW”, analysts concluded.
T- Bill Ends the Week Cold as Bonds Adjust to Lower Stop Rates
