Tepid opening seen across bonds, T-bills, OMO spaces, driven by system liquidity

The outcomes of trading activities ended in the mix across the fixed income space last week as bond and OMO investors largely hung around on the spin-offs, while a fresh supply of Nigerian Treasury Bills tenors prompted a week of buy-side activity across the T-bills space.

Beginning with activities in the bonds space, yields on benchmark bonds closed flat from the prior week due to a mix of buy and sell-side actions at the short-mid end of the market over the course of the week. Meanwhile, OMO activity was largely muted last week with a buy-side tilt in Friday’s session.

For fixed-income analysts, given the limited changes to the macroeconomic environment, their expectation is that the market will open this week on a relatively lukewarm note, owing to the level of system liquidity, while bond participants will remain on the sidelines as they look forward to the next bonds auction by the Debt Management Office.

Starting from the foreign exchange market, the Naira lost N0.29 week on week at the Investor & Exporters’ FX Window to close at N414.73 per dollar, while the CBN official window closed unchanged at N411.74 per dollar from the previous week as most market participants maintained bids at between N404 and N444 per dollar. Currency analysts maintained that they expect the naira to remain largely stable across the various windows of the currency space as the CBN maintains interventions in the FX market.

In the money market last week, Overnight (O/N) rate increased by 0.25 percent to close at 15.75 percent as against the last close of 15.50 percent, and the Open Buy Back (OBB) rate increased by 0.50 percent to close at 15.50 percent compared to 15 percent at the last close.

The Nigerian Treasury Bills secondary market closed on a flat note with average yield across the curve closing flat at 4.51 percent and the average yields across the long-term maturities declined by one basis point. Nonetheless, average yields across short-term and medium-term maturities remained unchanged at 3.52 percent and 3.74 percent, respectively. Meanwhile, the NTB 8-Sep-22 maturity bill, which declined 8 basis points, witnessed mild buying interest, while yields on 21 bills remained unchanged.

In the OMO bills market, the average yield across the curve declined by 3 basis points to close at 5.48 percent as against the last close of 5.51 percent. The average yield across the short-term maturities declined by 4 basis points as the average yields across medium-term and long-term maturities remained unchanged at 5.55 percent and 6.14 percent, respectively.

However, OMO 15-Feb-22 (-29 bps) and OMO 8-Feb-22 (-10 bps) maturity bills witnessed buying interest, while yields on 12 bills remained unchanged.

Furthermore, the CBN held an OMO auction on Thursday, selling bills worth N37 billion across the 110-day (N7 billion), 180-day (N10 billion), and 355-day (N20 billion) tenors with the stop rates remaining unchanged at 7 percent, 8.50 percent, and 10.10 percent, respectively. The auction was oversubscribed, indicating a subscription level of 182 percent or N72.78 billion.

Meanwhile, the demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 0.70x (110-day), 1.25x (180-day), and 2.66x (355-day) respectively.

Elsewhere, the FGN bonds secondary market closed on a mildly negative note as the average bond yield across the curve cleared higher by 7 basis points to close at 8 percent, from 7.93 percent on the previous day. Average yields across the short tenor and medium tenor of the curve increased by 9 basis points and 1 basis point, in that order.

However, the average yield across the long tenor of the curve decreased by 1 basis point. The FGNSB 11-DEC-2021 bond was the best performer with a decrease in the yield by 47 basis points, while the 23-MAR-2025 maturity bond was the worst performer with an increase in yield by 103 basis points.