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Treasury bonds end week bearish as DMO seeks to securitize the Ways and Means balance, overnight rate expand 10.00ppts w/w, to 16.3%

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SAT 06 MARCH, 2021-theGBJournal-In line with our expectations, the overnight (OVN) rate expanded by 10.00ppts w/w, to 16.3%, as debits for CRR and CBN’s weekly FX and OMO (NGN90.00 billion) auctions offset inflows for OMO maturities (NGN124.81 billion) and FX retail refunds.

We expect the OVN rate to remain elevated in the coming week, as expected outflows for CBN’s weekly auctions are likely to outweigh inflows from OMO maturities (NGN60.00 billion).

Treasury bills

The Treasury bills secondary market ended the week on a bearish note, as the average yield across all instruments expanded by 4bps to 3.9%. We attribute the performance to the reduced liquidity in the system and the pre-existing weak sentiments in the T-bills market. Across the segments, the average yield fell by 8bps to 6.0% in the OMO secondary market and by 4bps to 1.5% in the NTB segment. At this week’s OMO auction, the CBN sold NGN90.00 billion worth of bills to market participants and maintained stop rates across the three tenors, as with previous auctions. The CBN, on Monday, rolled over maturing Special Bills (c. NGN4.20 trillion) for 91 days at 0.5%.

As we anticipate another liquidity dearth in the system, we expect yields to maintain their uptrend. Also, we expect quiet trading at the NTB market as participants position for next week’s PMA, with NGN84.50 billion worth of maturities on offer.

Bonds

The Treasury bonds secondary market turned bearish, following market uncertainty about the direction of yields in the near term. Against this, the average yield in the space expanded by 14bps to 9.4%.

Across the curve, the average yield was lower at the mid (-26bps) and long (-3bps) segments, as investors demanded the NOV-2029 (-41bps) and JUL-2045 (-37bps) bonds, respectively. Conversely, average yield expanded at the short (+87bps) end, as investors took profits off the MAR-2025 (+231bps) bond.

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.-With Cordros Research

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