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Mixed bonds, bullish T-bills end week as CPI, DMO auction determine outlook



DMO Auction

Investment analysts have identified planned N150 billion bond auction by the Debt Management Office (DMO) and figures from Consumer Purchasing Index (CPI) as determinants of investment bearing in the fixed income market next week.


This week, trading in the treasury bonds secondary market continued with mixed sentiments, albeit with a bullish tilt, following the persistently lower demand as investors remain on the sidelines awaiting further clarity on the direction of fixed income yields.

Consequently, the average yield pared by 3 basis points (bps) to 11.6%. Across the benchmark curve, the average yield declined at the short (-17bps) and long (-2bps) ends following demand for the MAR-2024 (-44bps) and MAR-2035 (-11bps) bonds, respectively but expanded at the mid (+3bps) segment as investors sold off the FEB-2028 (+22bps) bonds.

Looking ahead, market experts expect the outcome of the bond auction and release of the January 2022 Consumer Purchasing Index (CPI0, which analysts at Cordros predict to read 15.47%, will shape market sentiments and the direction of yields.

At the auction, the DMO will be offering instruments worth N150.00 billion through re-openings of the 12.50% FGN JAN 2026 and 13.00% FGN JAN 2042 bonds.

In the medium term, market watchers still expect frontloading of significant borrowings for the year by the FG to result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply.

Treasury Bills

The Treasury bills secondary market ended the trading week on a bullish note, following some three factors identified as propellant of the bullish performance.

The factors are the improved system liquidity supporting demand, moderations in the 1-year paper stop rate at Wednesday’s NTB PMA and market participants’ movement to the secondary market in a bid to fill lost auction bids.

Consequently, the average yield across all instruments contracted by 10bps to 4.6%. Across the market segments, the average yield at the NTB segment settled lower by 4bps to 4.3%.

At the NTB auction, the CBN offered N98.01 billion for sale with a total subscription of N446.31 billion.

Accordingly, the CBN allotted N1.91 billion of the 91-day, N1.82 billion of the 182-day, and NGN211.23 billion of the 364-day bills – at respective stop rates of 2.48%, (unchanged), 3.30% (unchanged), and 5.20% (previously 5.40%).

Elsewhere, the average yield at the OMO segment expanded by 16bps to 5.6%. The CBN also offered and allotted N80.00 billion worth of OMO bills to participants and maintained stop rates across the three tenures, as with prior auctions.

Going into a new week, experts expect yields to trend marginally higher in the coming week as we expect a shortfall in system liquidity.


Meanwhile, the overnight (OVN) rate declined by 925 basis points (bps) week-on-week to 4.0%, as inflows from maturing FX swap contracts and OMO bills of N139.14 billion outweighed funding pressures for net NTB issuances valued at N116.95 billion and CBN’s weekly OMO of N80.00 billion as well as Foreign exchange auctions.

In the coming week, “we envisage the OVN rate would trend northwards as expected debits for CRR, FGN bond and CBN’s weekly auctions are likely to outweigh the sole expected inflow from OMO maturities of N140.00 billion”, say analysts at Cordros Capital.

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