Again, mixed sentiments reign in fixed income, Naira loses street cred by N3.50

• Analysts project same this week as DMO bond auction takes the shine Monday
• Naira to stay calm as CBN sustains FX intervention drives

Trading was again mixed last week across the fixed income market as investors remained inclined on the buy-side in the OMO and Nigerian Treasury Bills segments, while remaining sell-side driven across the bonds segments of the market. A similar trading behaviour is already being predicted by market analysts for this week as the Debt Management Office’s bond auction takes centre stage. Similarly, they prefigure a repeat of last week’s trading pattern in the Nigerian Treasury Bills market as investors continue to react to rate cuts at the last auction.

Meanwhile, tepid trading in the OMO market is anticipated given the currently constrained levels of system liquidity while the local currency is expected to stay unmoved across various windows of the foreign exchange market as the apex bank continues its inventions in the currency market.

Money Market: In the money market as at close of last week, Overnight (O/N) rate decreased by 2.50 percent to close at 4.75 percent as against the last close of 7.25 percent and the Open Buy Back (OBB) rate also decreased by 2.50 percent to close at 4.50 percent compared to the last close of 7 percent.

FX Market: The Naira appreciated by N1.37 week on week at the Investors and Exporters FX Window to close at N410.38, while depreciating by N3.50 week on week to close at N506 against the dollar in the parallel market. Most market participants maintained bids at between N400 and N412.50 per dollar.

T-bills market: The Nigerian treasury bills secondary market closed on a positive note by the end of the week with average yield across the curve decreasing by 41 basis points to close at 6.69 percent from 7.10 percent at the previous close. Average yields across medium-term and long-term maturities compressed by 44 basis points and 57 basis points, respectively. However, the average yield across the short-term maturities closed flat at 4.89 percent.

Also, in the OMO bills market, the average yield across the curve declined by 24 basis points to close at 9.29 percent as against the last close of 9.53 percent. Buying interest was seen across short-term and medium-term maturities with average yields falling by 7 basis points and 69 basis points, respectively. However, the average yields across the long-term maturities expanded by 3 basis points.

Moreover, the CBN held an OMO auction on July 15, selling bills worth N20 billion across the 103-day (N5 billion), 173-day (N5 billion), and 355-day (N10 billion) tenors with the stop rates remaining unchanged at 7 percent, 8.50 percent, and 10.1 percent, respectively. The auction was oversubscribed, indicating a subscription level of 287 percent (N57.48 billion). Demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 1.10x for the 103-day, 1.36x on the 173-day tenor, and 4.52x for the 355-day tenor.

Bonds Market: In the bond market, at the close of the week the FGN bonds secondary market closed on a positive note as the average bond yield across the curve cleared lower by 23 basis points to close at 9.69 percent from 9.92 percent. Thus, the average yield across the short tenor of the curve declined by 33 basis points, while the average yield across medium tenor and long tenor of the curve increased by 3 basis points and 17 basis points, respectively.

This week, the debt office is scheduled to offer the Federal Government of Nigeria (FGN) bonds worth N150 billion at the primary market auction, Monday, through re-opening of 10-year (N50 billion), 20-year (N50 billion), and 30-year (N50 billion) tenors. The bond settlement will take place on Friday, July 23, 2021.