Fixed Income Investors Trade Lowly Ahead of Auction, MPC Meeting

Fixed Income Investors Trade Lowly Ahead of Auction, MPC Meeting

The fixed income market investors continue to trade cautiously ahead of Primary Market Auction on Wednesday and the Monetary Policy Committee (MPC) meeting schedule to hold in January, 2021.

Specifically, the secondary market for T-bills traded on a calm note as investors anticipate a N232.4 billion Primary Market Auction (PMA) tomorrow.

In the fixed income market, sentiments were broadly mixed as investors expect the MPC meeting to provide better monetary policy clarity for the year.

The apex bank dovish stance has kept returns on investment returns on investment negative, thus creating investors apathy in the market.

On Tuesday, the financial system liquidity opened the trading day robust at N402.40 billion, relative to N134.68 billion previously.

The increased stemmed mostly from Open Market Operations (OMO) maturities inflow worth N170.67 billion.

Nonetheless, the Interbank funding rates expanded strongly, with the Open Buy Back (OBB) and the Overnight (OVN) rates rising by 50bps and 25bps to 3.00% and 3.50%, respectively.

Chapel Hill Denham expects funding pressure to ease further, mostly due to the first batch of January bond coupon payments valued at N194 billion which is expected tomorrow.

At the front end of the curve, the Nigerian Treasury Bill (NTB) benchmark yield curve closed flat at an average of 0.45%.

Market data shows that the OMO benchmark curve dipped by an average of 7bps to 0.92%.

Elsewhere in the bond market, the upward re-pricing of long-duration instruments, drove the benchmark bond yield curve higher by 21bps to 6.83% on average.

Although rates at the short end dipped by 2bps to 3.94% on average.

However, analysts said this was neutered by the bearish performance across the mid (+22bps to 7.42%), and the long (+40bps to 8.31%) end of the curve.

On Wednesday, the first NTB auction of the year is scheduled to hold.

The Central Bank of Nigeria (CBN) on behalf of the Debt Management Office is expected to offer a total of N232 billion to rollover 100% of the maturing amount.

The offer is split across N12.8 billion of 91-day, N26.6 billion of 182-day, and N193 billions 364-day tenors.

The previous auction cleared at 0.035%, 0.500% and 1.210% respectively. We expect demand to remain strong at the auction, as a result of the buoyant liquidity in the financial system

In the currency market, the Naira depreciated against the United States dollar at the I&E Window by 0.17% or 67 kobo to N394.00.

Meanwhile, the Naira closed flat in the parallel market at N475.00.

Read Also: Interbank Rates Collapse over Tight Financial System Liquidity

Fixed Income Investors Trade Lowly Ahead of Auction, MPC Meeting