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BONDS: Treasury bonds average yield expands by 36bps to 7.1%, as investors focused on FGN bond primary auction

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SAT 23 JAN, 2021-theGBJournal- Activities in the Treasury bonds secondary market was largely influenced by the proceedings in the primary market, as investors focused on Wednesday’s FGN bond primary auction.

The market ended on a bearish note, with average yield expanding by 36bps to 7.1%, as yields on the auction bonds adjusted to the stop rate level. At the auction, the DMO offered instruments worth NGN150.00 billion to investors through re-openings of the 16.2884% FGN MAR 2027 (Bid-to-offer: 1.8x; Stop rate: 7.98%), 12.50% MAR 2035 (Bid-to-offer: 2.1x; Stop rate: 8.74%) and 9.80% FGN JUL 2045 (Bid-to-offer: 0.8x; Stop rate: 8.95%) with a total subscription of NGN238.27 billion recorded.

However, due to investors’ demand for high yields, the DMO allotted only NGN122.36 billion at the auction and issued an additional NGN48.00 billion as non-competitive allotment, thereby bringing the total sale to NGN170.36 billion. Stop rates rose by an average of 158bps compared to the previous auction.

For next week, investors will be keen on the Monetary Policy Committee meeting holding during the week. We expect the outcome of the meeting to influence the direction of the market.

In the longer term, we maintain our view of tempered yields in the bonds secondary market at least through 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).-With Cordros Research.

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