Tepid trading in T-bills, OMO seen driven by liquidity constraints Bonds to stay bullish, Naira to trade calmly as CBN intervenes in FX market
Fixed Income Weekly Overview
Trading activity across the fixed income space was largely bullish last week with yields decreasing across all three sections of the market. Consequently, in the Nigerian treasury bills market, investors bought tenors across the mid-long end of the curve and as a result, the yields across the space declined on the average. Also, the OMO bills space saw buy-side activity at the mid-long end of the market, which drove the average yields into the dip, while the bonds market recorded players’ actions being driven on the buy-side and causing moderation on the yields.
This week, analysts foresee a tepid session in the treasury bills and OMO maturity bills segment as liquidity levels remain constrained. Meanwhile, it is predicted that the bond market will remain bullish in the near-term.
Nigerian Treasury Bills Market
At the end of trading week on Friday, the Nigerian Treasury Bills secondary market closed on a flat note with the average yield through the curve remaining unbothered at 5.48 percent. However, the average yields across short-term, mediumterm, and long-term maturities closed flat at 3.45 percent, 4.41 percent, and 6.52 percent, respectively.
Also, in the OMO bills market by the end of the trading week, the average yield across the curve closed flat at 6.37 percent, while the average yields across the short-term, medium-term, and long-term maturities closed flat at 6.46 percent, 6.05 percent, and 7.06 percent, in that order.
In addition, last Thursday there was an auction in the OMO market conducted by the CBN where it sold bills worth N19 billion across the 96-day (N4 billion), 187-day (N5 billion), and 341-day (N10 billion) tenors with the stop rates remaining unchanged at 7 percent, 8.50 percent, and 10.10 percent, respectively. The auction was oversubscribed, indicating a subscription level of 250 percent (N50 billion). However, the demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 1.00x (96-day), 1.50x (187-day), and 3.75x (341-day).
FGN Bonds Market
The FGN bonds secondary market closed on a positive note on Friday as the average bond yield across the curve inched lower by 28 basis points to close at 8.32 percent from 8.6 percent on the prior close. In the same vein, the average yields across short tenor, medium tenor, and long tenor of the curve decreased by 35 basis points, 3 basis points, and 3 basis points, respectively despite the fact that the secondary bond market may likely stay subdued in the short term.
However, the 27-APR2023 maturity bond was the best performer with a decrease in the yield of 94 basis points, while the 22JAN-2026 maturity bond was the worst performer with an increase in yield of 46 basis points.
Money Market
Moving over into the money market, the Overnight (O/N) rate increased by 3.25 percent to close at 18.50 percent as against the last close of 15.25 percent, and the Open Buy Back (OBB) rate inched higher by 3.20 percent to close at 18 percent compared to 14.80 percent on the previous session. This increase reflected the tight liquidity conditions in the banking system as the Central Bank curtailed excess system liquidity.
FX Market
Meanwhile, despite the introduction of the eNaira as a digital currency backed by the CBN, and which was seen as a major boost to the currency market as well as the banking sector after 33 banks was reported to have migrated to the platform, 200,000 wallets created and over 100,000 downloads within 24 hours, the Naira remained calm with high stability at N415.10 to the greenback through the week at the Investors’ & Exporters’ FX market. Most market participants maintained bids of between N405 and N444 per dollar.
However, as the apex bank continues its interventions in the foreign exchange market, the local currency is expected to trade in stable conditions across the various FX windows this week and in subsequent weeks.