Quiet trading across T-bills, bonds, OMO seen after week of mixed outing Activities to be driven by the last bond auction and dearth of bids in the T-bills space
LAST WEEK SAW A mixed outing in the fixed income market as investors began acting to guidance on future rate movements, from the week’s auctions across the bonds and T-bills segments. Consequently, the yield on benchmark bonds advanced and was driven by sell-side action at the short-end of the market and, outstandingly, in the OMO space, yields rose on the average, dragged by sellside action on the one year paper.
And this in the fixed income space, analysts at FSDH Capital and Vetiva Capital are sounding optimistic that away from the holidays, the market should trade in a quiet mode across all segments. “The bond market should trade on a muted note as investors await the outcome of the bond auction on Monday. We also expect the T-bills segment to trade on a quiet note due to a dearth of bids in the market,” they commented.
Foreign Exchange Market
In the currency market, the naira is expected to stay largely stable and in a tight band across all segments while the apex bank continues its weekly interventions in the foreign exchange market. This is a result of the struggle of the legal tender against the United States dollar in the past weeks where it traded relatively stable albeit bearish across all market spaces.
In the Investors’ and Exporters’ foreign exchange market, the naira depreciated by N0.67 last week to close at N419 per dollar while the currency traded relatively down to N590 per dollar at the parallel market space as a result of illiquidity in the system. As a result of the illiquidity in the system, the level of trading activity within the foreign exchange market dipped by more than 11 percent to $2.6 billion. Meanwhile, most market participants maintained bids at between N410 and N444 per dollar.
Money Market
Diving into the money market where funding rates are witnessing incessant jumps on the back of lean system liquidity, the Overnight (O/N) rate saw an increase by 0.75 percent to close at 12.50 percent as against the last close of 11.75 percent, and the Open Repo (OPR) rate increased by 1.25 percent to close at 12.25 percent compared to 11 percent on the previous day.
As a result of the lean liquidity in the system from funding rates, the month closed with N70.5 billion in system liquidity.
Treasury Bills Market
Elsewhere, in the Nigerian Treasury bills market, it closed the week on a flat note with the average yield across the curve remaining unchanged at 3.70 percent.
In the same vein, the average yields across short-term, medium-term, and longterm maturities remained unchanged at 3.06 percent, 3.53 percent, and 4.30 percent, respectively.
Meanwhile, in the Nigerian treasury bills space, the Central Bank of Nigeria (CBN) conducted an auction where it offered N120 billion and sold N130 billion at stop rates of 1.74 percent, 3 percent, and 4.79 percent respectively; and of note, the CBN raised rates offered at the long end of the market.
Also, in the OMO maturity bills market, the average yield across the curve closed flat at 4.07 percent while the average yields across short-term, medium-term and long-term maturities remained unchanged at 3.00 percent, 3.72 percent, and 4.96 percent, respectively.
FGN Bonds Market
And into the FGN bonds secondary market, it closed the week on a mildly negative note as the average bond yield across the curve cleared higher by one basis point to close at 11.53 percent from 11.52 percent on the previous day. Average yield across the short tenor of the curve expanded by six basis points, while the average yield across the long tenor of the curve declined by one basis point.
However, the average yield across the medium tenor of the curve remained unchanged. The 18-APR-2037 maturity bond was the best performer with a decrease in the yield of three basis points, while the 23-MAR-2025 maturity bond was the worst performer with an increase in the yield of 13 basis points.
Last Monday, the Debt Management Office offered for subscription the FGN Bond for April 2022 and it was oversubscribed by 82 percent due to healthy investor demand, with bid-to-cover ratios for 10-year, 20-year, and new 10-year bonds settling at 1.45x, 2.97x, and 1.04x respectively. Meanwhile, the DMO allotted bonds worth N219.88 billion across the 10-year tenor for N74.28 billion, 20-year tenor for N79.68 billion, and reopened a new 10-year tenor for N65.92 billion at marginal rates of 10 percent, declining 15 basis points, 12.90 percent appreciating 20 basis points, and 12.50 percent, respectively. Furthermore, the DMO allotted bonds worth N128.70 billion through non-competitive bids across the 20-year tenor at N38.70 billion and the new 10-year tenor at N90 billion. In total, the DMO raised N348.58 billion.