NTB Auction: DMO raise NTB stop rates by 133bps

• By Analysts at Zedcrest Capital

FGN Bonds

The FGN Bond market continued to trade on a strong note, as spreads tightened at the belly and tail of the FGN Bond curve, following sustained speculative demand. We witnessed sustained interest for the long-tenured bonds, with pushed yields on the 2034s to 2037s papers down by c.20bps on the day. The 2045s and 2049s papers also saw some demand, closing lower by c.20bps as well eventually trading hands at 11.10% levels. Overall, yields compressed by c.10bps on the average across the FGN benchmark curve.

We maintain a cautious view on the recent dip in bond yields, and in light of the continued trend of rising short-term rates, we expect the demand for bond yields to slow down opening tomorrow.]

Treasury Bills

The T-bills market sustained its bull run, as demand across the curve from local banks remained in light of excess system liquidity levels. We noted demand for mid-dated papers (October 2021 maturities) with traded at 6.00% levels (c.15bps lower d/d) as well as at the long-end (February 2022 maturities) which traded around 8.70% levels.

At the PMA, the DMO sold a total of N147.26Bn in maturing treasury bills across the three maturities on offer, c.N19Bn more than on offer as it looked to cover some of the repayments done at earlier auctions this year. The stop rates closed higher by c.133bps on the average across the three tenors, closing at 2.00%, 3.50% and 5.50% for the 91-, 182- and 364-days respectively. Demand again was skewed to 364-day tenor, with a bid-to-cover ratio of 2.39X.

We expect the bull run to slow down tomorrow as the market looks to see the CBN react to the DMO’s increase of rates via its OMO auction expected to hold tomorrow. As expectations for another increase in OMO stop rates linger, we expect local banks to pause on secondary market buying until after the auction results.

Money Markets

Rates in the money market dipped further by c.20bps due to the sustained high system liquidity. The OBB and OVN rates consequently ended the session at 1.50% and 1.83%, with system liquidity now estimated at c.N691bn positive.

We expect rates to trend higher in tomorrow’s session, as we anticipate another OMO auction by the CBN to manage excess system liquidity.

FX Market

Supply in the I&E FX window improved from export proceeds as traded volumes improved by 72% d/d (c.$212mio traded). Participants were bided between N390.00$ and N429.75/$ causing the closing rate to depreciate by 0.05% d/d to close at N408.80/$.

At the parallel market, the cash gained 50k on the day to close at N478.50/$ while the transfer rate remained stable at N492.00/$.

Eurobonds

The SSA sovereign space extended gains today, alongside global bonds, coming off the US FED’s Jerome Powell’s speech the night before. Demand returned to SSA Space in droves, with the EGYPT and South Africa sovereigns leading the pack while Turkey sovereigns posted some odd losses. Yields on the NIGERIA Sovereigns curve compressed by c.4bps on the average to close the session.

The NIGERIA Corps coughed up some of the recent gains posted, as sellers offloaded most of the tracked papers for most of the season. The ACCESS 2021s and SEPLLN 2023s led the losers’ chart, as yields on both papers increased by c.65bps and c.72bps respectively.