Foreign Investors Buy More OMO Bills, Auction to Shape T-Bills Yield
Godwin Emefiele, CBN Governor

Foreign Investors Buy More OMO Bills, Auction to Shape T-Bills Yield

Central Bank of Nigeria Primary Market Auction (PMA) results would shape yield direction in the Nigerian treasury bills market this week as long-dated federal government bond was repriced in the just concluded week.

In the fixed income market, average yields on instruments across the curve had closed weak as the headline inflation rate slowdown. The declining inflation rate for the seventh month has again narrowed the negative real return on fixed income instruments earned by investors.

Again, there is an expectation that the Central Bank would keep the benchmark interest rate this week at the policy committee meeting. Last week, bullish trading sentiments persisted in the Treasury bills secondary market on the back of declining primary market offer rates in the Nigerian T-Bills segment and as foreign investors increased their OMO portfolio.

Accordingly, the average yield across all instruments contracted by 11 basis points to 5.3%. Across the market segments, the average yield declined by 14bps and 8bps to 5.5% and 5.1% at the OMO and Nigerian Treasury bills segments, respectively.

“We expect the outcome of the NTB auction to shape the direction of yields in the T-bills market”, Cordros Capital hinted in a note. At the primary market auction, the CBN is set to roll over N118.73 billion worth of maturities to market participants.

Meanwhile, Federal Government bonds secondary market traded snapped the mixed trading sentiments recorded in the last two weeks and traded with bearish sentiments. Analysts noted that investors took profits on their bond auction winnings and reacted to the increased stop rate of the longer-dated instrument on offer.

Accordingly, the average yield expanded by 7 basis points to 11.1%. It was noted that across the benchmark curve, the average yield declined at the short (-3bps) end following sustained demand for the JAN-2026 (-15bps).

But then it expanded at the mid (+13bps) and long (+5bps) segments as investors upwardly repriced the JUL-2030 (+24bps) and JUL-2034 (+10bps) bonds, respectively.

At the bond auction, the DMO offered instruments worth N150.00 billion to investors through re-openings of the 12.5000% FGN JAN 2026 bond class recording a Bid-to-offer of 1.0x with a stop rate steadied at 11.65%. 

Also, 16.2499% FGN APR 2037 bond class recorded a bid-to-offer of 0.9x with stop rate unchanged at 12.95% and 12.9800% FGN MAR 2050 sees a bid-to-offer ratio of 3.4x with stop rate printed at 13.30%, a 10 basis points above 13.20% in the previous auction.

Following the significant level of demand with subscription level that printed at N267.15 billion; recording a bid-to-offer of 1.8x, the DMO eventually over-allotted instruments worth N225.25 billion, resulting in a bid-to-cover ratio of 1.2x.

Analysts maintain a view of lower yields given expectations of a limited supply of debt instruments and deliberate efforts by the DMO to reduce domestic borrowing costs for the government.

Bearish sentiments dominated the local bourse this week, as the market recorded losses on four of the five trading sessions following profit-taking activities.

Consequently, the All-Share Index declined by 0.1% last week compared with the previous one to settle at 43,199.27 points.  Stock market month to date and year to date slide by 2.8% and 7.3%, respectively.

There was heavy profit-taking in Total, GTCO, FBN Holdings and Nigerian Breweries. Trading data shows that TOTAL lost 9.9% of its opening share price, GTCO was down 7.5%, and FBNH declined by 3.7% and NB slow down 2.8%, their combined price depreciation drove the weekly loss.

Largely, trading activity levels were mixed as trading volumes declined by 4.8% in the week while value grew by 33.4% above the previous week.

Projecting into this week, analysts said they are expecting a mixed market performance as the bulls and bears are likely to be in gridlock due to the opposing forces of bargain-hunting activities in stocks with attractive dividend yields ahead of 2021FY dividend declarations and intermittent profit-taking activities.

Notwithstanding, investors were advised to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.

The overnight rate expanded by 475 basis from the previous to 20.0% in the just concluded week, in light of the funding pressures for the November bond auction settlement, Open Market Operations and FX Auctions.

A bond settlement worth N225.25 billion, CBN’s weekly OMO outflow value at N25.00 billion and FX auctions offset the sole inflow from OMO maturities valued at N70.50 billion). Due to strained liquidity position, analysts are envisaging that the overnight lending rate would remain elevated in the double-digit region.

It is expected that debits for cash reserve ratio, possible net Treasury Bills issuances and CBN’s weekly auctions inflows are likely to offset expected inflows from FAAC disbursements, N33 billion OMO maturities and about N18 billion FGN bond coupon payments. #Foreign Investors Buy More OMO Bills, Auction to Shape T-Bills Yield

Read Also: T- Bill Ends the Week Cold as Bonds Adjust to Lower Stop Rates

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