SAT 16 JAN, 2021-theGBJournal- Activities in the Treasury bonds secondary market remained bearish as investors remained on the sidelines, awaiting clarity on the direction of monetary policy, and reacted to the release of inflation data for December 2020 (15.75%).
Consequently, average yield expanded by 30bps to 6.1%. Across the benchmark curve, upward repricing of mid (+75bps) and long (+38bps) dated instruments continued following major profit taking on the FEB-2028 (+143bps) and APR-2037 (+67bps) bonds. Conversely, average yield declined at the short (-5bps) end following demand for the JAN-2022 (-64bps) bond. Notably, the DMO released the FGN bond auction calendar for Q1-21, outlining its intentions to raise NGN450.00 billion (Q4-20: NGN220.00 billion) through re-openings of the MAR 2027, MAR 2035, and JUL 2045 bonds.
We expect yield direction to be determined by the stop rates at next week’s auction. Nevertheless, we expect yields in the bonds secondary market to temper in the first quarter of the year, given the limited supply amidst significant inflows from OMO maturities (c. NGN2.34 trillion) and FGN bond coupon payments (c. NGN500.00 billion) expected. At next week’s auction, the DMO is set to offer instruments worth NGN150.00 billion through re-openings of the 16.2884% FGN MAR 2027, 12.50% FGN MAR 2035 and 9.80% FGN JUL 2045 bonds.