In line with rife expectations by investors in the Nigeria’s Fixed Income (FI) Market, the overnight (OVN) rate expanded by 424 basis points last week to 9.2%, despite an inflow of N38.08 billion OMO maturities last week.
The inflow was overwhelmed as Nigerian lenders dealt with funding pressures for CRR debits, with Central Bank of Nigeria’s weekly OMO of N30 billion, N10.39 billion treasury bills net issuance and FX auction also contributing to the pressure.
However, experts highlighted that system liquidity still remained healthy as the net liquidity position averaged N264.92 billion.
Market watchers expected the outflows for the new week’s auctions (OMO and FGN bond) and arbitrary CRR debits, if any, to offset the inflows from OMO maturities of N35.00 billion and FGN bond coupon payments of N8.50 billion.
Thus, we expect the overnight rate is envisaged to trend northwards.
Treasury bills
The Treasury bills secondary market sustained last week’s bullish sentiments following the liquidity-driven demand for bills at the secondary market.
Thus, the average yield across all instruments contracted by 7 basis points (bps) to 3.7%. Across the segments, the average yields contracted by 5bps and 7bps to 4.0% and 3.6% at the OMO and NTB secondary markets, respectively.
At the OMO auction during the week, the CBN fully allotted N50.00 billion worth of OMO bills to participants and maintained stop rates across the three tenors – 103DTM: 7.0%, 180DTM: 8.5% and 355DTM: 10.1% – as with prior auctions.
Elsewhere, at the NTB PMA, demand continued to outweigh supply, as there was an oversubscription of 2.7x on NGN127.47 billion worth of bills on offer.
As a result, the auction closed with the CBN allotting NGN1.02 billion of the 91-day, NGN2.83 billion of the 182 – day and NGN134.01 billion of the 364-day – at respective stop rates of 1.74% (unchanged), 3.00% (unchanged), and 4.70% (previously 4.79%).
With system liquidity expected to tighten in the coming week, traders are informed to anticipate an increase in the average yield on T-bills from current levels.
Bonds
Proceedings in the Treasury bills secondary market turned bullish last week as investors cherry-picked instruments with attractive yields across the bond curve.
Consequently, the average yield dipped by 3bps to 11.2%. Across the benchmark curve, the average yield contracted at the short (-1bp), and long (-6bps) ends as investors took a keen interest in the JAN-2026 (-26bps) and APR-2037 (-33bps) bonds, respectively.
There is a consensus that in this week, the outcome of the May 2022 FGN auction holding on Monday will influence the direction of yields in the bonds secondary market.
At the auction, the DMO will be offering instruments worth N150.00 billion through re-openings of the 13.53% FGN MAR 2025, 12.5000% FGN APR 2032 and 13.0000% FGN JAN 2042 bonds.
In the medium term, experts maintain popular stance of uptick in yields as the FGN’s borrowing plan for 2022FY points to elevated supply.
