(Greenwich Merchant Bank): The Fixed Income market traded on a mixed note this week as outcomes varied across markets. The NT-bills market opened on a bearish footing at the start of the week with an average yield reaching 1.2% before moderating by mid-week following buying interests across the curve.
Specifically, bids on long-dated bills on Wednesday pushed the average yield in the market lower by 21bps to 1.0%. While the market returned bearish in the subsequent sessions, the momentum was not enough to reverse the decline in yields. Thus, yields averaged 1.0% WoW at the close of trade on Friday compared to 1.1% last week.
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Next week, we expect the rollover of bills worth NGN19.8bn, NGN10.0bn, and NGN140.0bn across the 91-day, 182-day, and 364-day instruments, respectively. At the Primary Market Auction (PMA), we expect investors to continue to widen the bid range in search of higher stop rates.
Elsewhere, the OMO market was largely bearish, marked by a 31bps rise in yields to an average of 2.0% from 1.7%. During the week, the CBN sold OMO-bills worth NGN10.0bn (89-day), NGN10.0bn (180-day), and NGN51.7bn (362-day) at superior rates of 7.0%, 8.5%, and 10.1% apiece.
This is a sharp spike to the prevailing rates seen in the market lately. We opine that the steep hike in OMO-bills stop rates by the Apex bank is an attempt to stem down FX demand pressure from foreign investors stuck in the market. Next week, we expect OMO-bills maturity worth NGN213.9bn to hit the system, thereby, further bolstering liquidity.
The Open Buy Back and Over Night rate remained elevated this week, closing at 17.5% and 18.0%, up from 10.5% and 11.0% respectively in the previous week amid a tighter liquidity environment.
This week, the Bonds market traded with a bullish bias. Notably, yields contracted across the belly (-23bps) and tail (-7bps) segments of the market, while investors sold off instruments at the short end (+12bps). Consequently, the average bonds yield dipped by 7bps to settle at 8.0% from 8.1% on a WoW basis.
In the FX market, the Naira weakened at the Parallel market to NGN480.00/USD from NGN478.20/USD in the prior week. Further afield, turnover eased by 23.4% WoW in the Investors’ & Exporters’ Window (I&EW) to a weekly average of USD200.4mn compared to USD261.5mn in the prior week. Against this backdrop, the Naira came under pressure at the I&E Window to close at an average of NGN395.56/USD relative to NGN394.24/USD last week.
In the coming week, we expect investors to remain cautious and pessimistic in the fixed income space.