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Tight system liquidity triggers T-bills sell-offs from local banks as Treasury bonds end week lower by 10bps to 9.3%

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SAT, MARCH 13 2021-theG&BJournal- Just as we envisaged, activities in the Treasury bills secondary market remained bearish (average yield across all instruments expanded by 125bps to 5.1%), as (1) the tight system liquidity triggered sell-offs from local banks, and (2) markets participants shifted their focus to the PMAs in both market segments.

Consequently, the average yield was higher by 78bps to 6.8% at the OMO secondary market and by 130bps to 2.8% at the NTB segment.  At this week’s OMO auction, the CBN sold NGN60.00 billion worth of bills to market participants and maintained stop rates across the three tenors, as with previous auctions. At the NTB auction, the CBN offered NGN88.91 billion – NGN4.41 billion of the 91-day, NGN14.00 billion of the 182-day, and NGN70.50 billion of the 364-day – in bills and ultimately allotted NGN108.77 billion. The auction stop rates were unchanged at 2.00% and 3.50% on the 91D and 182D bills but increased by 100bps to 6.50% – Its highest level since February 2020 – on the 364D bill.

We expect yields to temper in the coming week as the net liquidity position in the system improves. We expect participants at the NTB market to shift their focus to the primary market, with the CBN expected to roll over maturities worth NGN47.06 billion.

Bonds

The Treasury bonds secondary market ended the week on a bullish note, as investor’s cherry-picking on attractive yields supported the market performance, amid sell-offs on various positions on Thursday, in reaction to the higher stop rate on the long-dated NTB.  As a result, the average yield in the space was lower by 10bps to 9.3%. Across the benchmark curve, the average yield was lower at the short (-12bps), mid (-18bps), and long (-6bps) segments, following significant demand for the JAN-2026 (-130bps), MAR-2027 (-60bps) and MAR-2050 (-16bps) bonds, respectively.

With the current happenings in the market, we expect the uptrend in yields to be maintained as the DMO seeks to securitize the Ways and Means balance. Overall, while pressure points remain that could pressure yields, we expect yields to touch double-digit on the average over the short term.

At the money market,  the overnight (OVN) rate (decreased by 216bps to 14.2%) ended the week lower. Still, it remained elevated due to the reduced level of inflows from OMO maturities (NGN60.00 billion) amid significant funding pressures on the system for CBN’s weekly FX and OMO (NGN60.00 billion) auctions and net NTB issuance (NGN19.86).

Barring any significant mop-up from the CBN, we expect the OVN rate to trend southwards, as inflows from OMO maturities (NGN143.35 billion) and FGN bond coupon payments (NGN142.09 billion) comes into the system.-With Cordros Research

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