Sentiments mixed in fixed income ahead PMA as naira loses strength all round
The coming auction takes the shine as traders see cautious trading with bullishness on bonds
TRADERS ARE ANTICIPAT ING a cautious trade in the treasury bills and OMO markets this week as market investors begin to stay focus ahead of the forthcoming primary market auction which is taking a centre stage this period while they continue to monitor market developments. In the bonds market, however, analysts say they look forward to bullish momentum.
Sentiment was largely mixed in the fixed income and money market space last week with investors pursuing OMO papers, while selling their bonds and Nigerian Tbills papers, just as happened the previous week. Also, the currency market was in red on a week on week comparison, though forex traders have hinted at their expectations of stability, as the CBN maintains interventions in the FX market.
Money Market
In the money market, the overnight (OVN) lending rate inched higher by 875 basis points to 20.5 percent as the Central Bank of Nigeria (CBN) debited banks for failing to meet loan to deposit ratio target, while the Open Buy Back (OBB) rate increased by 850 basis points to close at 19.75 percent. Money market rates increased by an average of 863 bps following the FX retail auction by the CBN.
FX market
At the foreign exchange segment, the local currency lost ground at the parallel market, depreciating further by N0.20 week on week to N502.5 to a dollar, while there was a N0.60 week on week depreciation to N411.75 per dollar at the Investors’ and Exporters’ window, where total turnover decreased by 24.5 percent in five days to $526.79 million, with trades consummated within the N400 and 420.86 per dollar band.
Treasury Bills
The Nigerian treasury bills secondary market closed on a mildly positive note with average yield across the curve decreasing by 2 basis points to close at 6.89 per cent. Average yield across the longterm maturities decreased by 4 basis points. However, the average yields across shortterm and medium-term maturities closed flat at 4.58 percent and 5.57 percent, respectively. Buying interest was witnessed in the NTB 9-Jun-22 (-50 bps) and NTB 26-May-22 (-8 bps) maturity bills, while yields on 18 bills remained unchanged.
In the OMO bills market, the average yield across the curve increased by 1 basis point to close at 9.89 per cent. Mild selling pressure was seen across long-term maturities with the average yield rising by 2 basis points. However, the average yields across short-term and medium-term maturities closed flat at 9.35 percent and 9.99 per cent, respectively. Selling pressure was witnessed in the OMO 1-Mar-22 (+13 bps) and OMO 15-Mar-22 (+6 bps) maturity bills, while yields on 22 bills remained unchanged.
Moreover, the CBN held an OMO auction on July 8, selling bills worth N17 billion across the 110-day (N2 billion), 180-day (N5 billion), and 327-day (N10 billion) tenors with the stop rates remaining unchanged at 7 percent, 8.50 percent, and 10.1 percent, respectively. The auction was oversubscribed, indicating a subscription level of 179 per cent (N35.72 billion). Demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 0.50x (110-day), 1.11x (180-day), and 2.77x (327-day).
Bond Market
Elsewhere, the FGN bonds secondary market closed on a flat note as the average bond yield across the curve remained unchanged at 9.54 percent. Average yield across the medium tenor of the curve decreased by 1 basis point, while the average yield across the short tenor of the curve increased by 1 basis point. However, the average yield across the long tenor of the curve remained unchanged. The 17-MAR-2027 and 27-MAR-2050 maturity bonds were the best performers with a decline in yield of 3 basis points each, while the FGNSB 10-JUL-2022 bond was the worst performer with an increase in yield of 5 basis points.