N185bn coupon inflow puts bulls in pole on bond, as OMO, T-Bills go quiet

BY: CHARLES ABUEDE

The secondary market was largely positive last week as yields trended downwards in the bonds space while remaining flat week on week across the Nigerian Treasury Bills and OMO segments, except for the strong buying interest across segments following the oversubscription of offers from CBN’s auctions last week. Meanwhile, in the bonds market demand remained robust at the short and long ends of the benchmark curve.

Looking ahead into this week in the fixed income and money market, analysts at Afrinvest Securities Limited and Vetiva Capital Management expect a bullish outing across all sessions while the treasury bills secondary market has been projected to trade mute following the forthcoming primary market auction set to hold on Wednesday, and the expectation of N185 billion worth of coupon inflow, will drive bullish trading in the domestic bonds market.

“This week, we anticipate bullish trading in the bonds space, as coupon inflows of about N185 billion hit the market, while the T-bills segment is expected to trade on a muted note in anticipation of the PMA slated for Wednesday. Also, we expect the Naira to trade within [a] similar range across FX segments,” Vetiva Capital analysts said.

For Afrinvest Securities analysts, they expect, “Funding rates to hover around current levels as inflows from Primary Market Auction and OMO maturities worth N105.7 billion and N21.5 billion respectively hit the system. Due to N185.8 billion inflows from coupon payments this week, we anticipate a bullish performance in the domestic bond market.”

Foreign Exchange Market

The wild ride in the oil market persisted last week as the Russian-Ukraine crisis rages on. Oil price neared $130 per barrel at the start of the week as the US (excluding its European allies) banned Russian energy. However, the price declined 5.2 percent week on week to $111.99 per barrel following an oil production increase signal by UAE, a major OPEC member. Despite crude oil trading at a premium north of $30 per barrel to Nigeria’s 2022 budget benchmark in nearly three weeks, external reserves fell further 0.3 percent week on week to $39.6 billion.

Driving into the currency market, rates traded within similar bands as the previous week. The parallel market last week saw the Naira depreciate by N1 week on week to N578 per one United States dollar, while the NAFEX rate at the Investors & Exporters (I&E) Window appreciated N0.17 week on week to N416.50 per dollar.

However, the activity level in I&E Window improved last week as total turnover jumped 17.3 percent or $98.1 million to $665.9 million. Meanwhile, activity at the FMDQ Securities Exchange FX Contract Market was muted as the total value of open contracts remained unchanged at $4.5 billion.

Money Market

Last week, the money market rates – OPR and OVN – dipped 883 basis points apiece to close at 4.5 percent and 5 percent respectively, despite liquidity squeeze by the CBN to N60 billion from N571.4 billion in the prior week.

Furthermore, on the 10th of March, the CBN conducted an OMO auction, offering N40 billion across three tenors with rates unchanged. The 96-day tenor with an offer at N10 billion witnessed subscription at N54.3 billion, and stop rate at 7.0 percent. Also, the 187-day tenor with an offer at N10 billion recorded subscription at N55.4 billion and stop rate at 8.5 percent and the 362-day tenor with an offer at N20 billion and Subscription level of N176 billion saw its stop rate at 10.1 percent as they were oversubscribed by 5.4x, 5.5x, and 8.8x, respectively.

Likewise, in the secondary T-bills market, performance was largely muted, although the average yield rose 0.5 basis points to settle at 3.6 percent. Across tenors, the short and mid-end of the curve closed flat while there were sell-offs at the long-end of the curve as average yield rose 2 basis points week on week.

Elsewhere, the CBN on the 9th of March, 2022 offered N94 billion for sales across the 91-day (N1.6 billion), 182-day (N11.9 billion), and 364-day (N80.6 billion) tenors for Treasury Bills with rates declining 49 basis points, 2 basis points, and 25 basis points, respectively to 1.75 percent, 3.28 percent, and 4.1 percent. Notwithstanding the fall in rates, the bills were oversubscribed by 2.8x, 3.4x, and 5.4x, respectively.

Bonds Market

Further afield into the bonds space last week, the market performance was bullish in the domestic bond market as average yield declined 16 basis points week on week to 10.4 percent. Yield at the short end of the curve contracted faster, down by 42 basis points week on week. Likewise, the yields on the medium and long-term instrument pared 12 basis points and 10 basis points week on week respectively.

Also, performance in the sub-Saharan Sovereign Eurobonds market was bullish as average yield declined 8 basis points week on week to 11.7 percent. The Ghanaian 2025 and Ghanaian 2029 instruments led gainers, recording 199 basis points and 130 basis points week on week yield contraction, respectively.

Conversely, the Zambian 2022 instrument saw the most sell-offs as the yield rose 703 basis points week on week. Meanwhile, the African Corporate Eurobonds market closed negative for the week as average yield rose 57 basis points week on week to 7.8 percent following sell pressure on UBA 2022 and Zenith 2022 with yields rising 410 basis points and 183 basis points week on week respectively.