Liquidity squeeze persists as CBN auctions fresh N117.6bn TB instruments
The Treasury bills secondary market remained bearish this week, as the liquidity squeeze in the system drove sell-offs by market participants.
As a result, the average yield across all instruments expanded by 14 basis points to 7.1 per cent. Across the market segments, the average yield increased by 23bps to 8.6 per cent at the OMO segment and by 21bps to 5.1 per cent at the NTB segment.
At the NTB auction, the CBN offered instruments worth N117.56 billion, consisting of N24.67 billion of the 91-day; N10 billion of the 182-day; and N82.89 billion of the 364-day.
The offers were however oversubscribed by 18.2 per cent as the apex bank ultimately allotted N138.98 billion.
Meanwhile, the stop rates at the auction increased by 50bps on the 91D bill of N24.67 billion but was unchanged at 3.50 per cent and 9.75 per cent on the 182D and 364D bills, respectively.
The auction was oversubscribed with a subscription level of N230.89billion, translating to a bid-cover ratio of 1.7x (previous auction: 1.9x).
Market observers envisaged scope for the average yield of T-bills to trend higher next week, as they expect the dearth of liquidity in the financial system to persist.
Bonds
The Treasury bonds secondary market closed on a bullish note, as investors cherry-picked on attractive yields at the mid and long segments of the curve. Consequently, the average yield contracted by 8bps to 12.3 per cent.
Across the benchmark curve, the average yield declined at the mid (-8bps) and long (-14bps) segments as investors demanded the MAR-2027 (-10bps) and MAR-2050 (-24bps) bonds, respectively. However, the short end was flat.
Expectations are high that investors would resume sell-offs on Treasury bonds in the coming week, driven by persisting negative sentiments in the market.
Investment analysts at Cordros Capital Limited maintained view of higher bond yields in the short term.
“Farther into the month, we highlight that the release of key macro indicators will shape market sentiments and the direction of yields.
“Such macroeconomic indicators include April 2021 CPI (Cordros Forecast: 18.75%), Q1-21 GDP (Cordros Forecast: +0.94%) and the MPC’s rate decision, which will be largely influenced by the outcome of the Q1-21 GDP number,” they said.
Money market
in the money market, the overnight (OVN) rate expanded by 13.63 ppts w/w to 28.9 per cent as debits for CRR and CBN’s weekly OMO and FX auctions offset inflows from OMO maturities (NGN90.00 billion).
We expect the OVN rate to remain elevated in the coming week, as expected inflows from OMO maturities (N40.00 billion) and FGN bond coupon payments (N8.50 billion) may not be significant enough to saturate system liquidity.
