Treasury, Bonds Yields Mixed as DMO Holds Auction
In the secondary market, Treasury bills yield dipped while Federal Government bonds yields tracked higher on Friday due to selling down while market traders weigh Debt Management Office (DMO) decision to holds primary market auction today.
At the auction, the Nigerian debt office will be offering bond instruments worth N150.00 billion through re-openings of the 12.5000% FGN JAN 2026 and 13.0000% FGN JAN 2042 bonds.
“We maintain our yield uptick stance in the medium term, as the FGN’s borrowing plan of N2.57 trillion for 2022 points to elevated supply”, Cordros Capital analysts said. In the money market, average interbank rates adjusted upward due to liquidity strain in the financial system on Friday.
The overnight rate expanded by 467 basis points last week above the previous period to 9.67%, as late debits for net Nigerian Treasury Bills issuances worth flew out of the system N114.57 billion.
This came in addition to open market operations (OMO Bills) outflow of N40.00 billion and FX auctions offset inflows from FGN bond coupon payments worth N142.09 billion and OMO maturities worth N105.00 billion.
“We expect the overnight lending rate to trend northwards, as outflows for next week’s auctions (FX and FGN bond) and arbitrary CRR debits, if any, are likely to offset the inflows from OMO maturities (N105.00 billion) and FGN bond coupon payments (N37.72 billion”, Cordros Capital said in a market note.
Meanwhile, analysts said proceedings in the Treasury bills secondary market closed the week on a bullish note as the healthy system liquidity fostered the demand for short to mid-dated bills.
However, analysts observed some level of inactivity in the early part of the week, with market participants shifting their focus to the primary market auctions (PMAs) in both market segments.
Against the preceding, the average yield across all instruments declined by 11 basis points to 3.4%, according to Cordros Capital note. Across the market segments, the average yield fell by 30 basis points and 13 basis points to 3.6% and 3.3% at the OMO and Nigerian Treasury Bills segments, respectively.
At last week’s OMO auction, the CBN sold N40.00 billion worth of bills to market participants and maintained stop rates across the three tenors, as with previous auctions.
At the NTB auction, the CBN offered N58.04 billion – N960.66 million of the 91-day, N3.61 billion of the 182-day, and N53.46 billion of the 364-day – in bills.
Ultimately, the CBN allotted N172.61 billion – N5.91 billion of the 91-day, N6.85 billion of the 182-day and N159.85 billion of the 364-day bills – at respective stop rates of 1.74% (from 1.75%), 3.00% (from 3.28%), and 4.00% (from 4.10%).
With system liquidity expected to tighten in the coming week, Cordros Capital analysts said they envisage an increase in the average yields on T-bills from current levels.
Last week, trading activities on FGN bonds secondary market retraced and turned bearish, as only a handful of trades were consummated following weakened demand.
Traders said they suspect that investors held on to idle funds in anticipation of PMA for this week. Accordingly, the average yield expanded by 10 basis points to 10.5%.
Across the benchmark curve, despite the weakened activity levels, analysts said they still witnessed cherry-picking on attractive mid- to long-dated instruments.
Precisely, the average yield across the curve declined at the short (-22bps), mid (-27bps) and long (-8bps) segments as investors demanded the APR-2023 (-154bps), JUL-2034 (-45bps) and MAR-2036 (-33bps) bonds, respectively.
Cordros Capital expects the outcome of the March 2022 FGN auction holding on Monday, March 21, to influence the direction of yields in the bonds’ secondary market. #Treasury, Bonds Yields Mixed as DMO Holds Auction
