(Greenwich Merchant Bank): In the last trading week of January, bearish sentiment dominated the Fixed Income space stoking a rise in the average yield across markets to 4.0% WoW from 2.8%.
In particular, the NT-bill space opened the week bearish even though most trades settled flat as investors awaited the outcome of the first MPC meeting of the year on Tuesday and an NT-bill Primary Market Auction (PMA) on Wednesday.
At the PMA, investors demanded higher yields to hold government security which settled stop rates across the 91-Day at 0.55% from 0.50%, 182-Day at 1.30% from 1.00% and 364-Day at 2.00% from 1.50%. Following the auction, investors quickly sold-off their holdings causing yields in the secondary market to hit a 3-month high of 1.1%.
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However, the selloffs opened opportunities for investors to position in tickers at the belly of the curve, thus, moderating yields slightly on Friday. Overall, the average NT-bills yield rose from 0.5% to 1.1% WoW.
Elsewhere, the OMO market followed a similar trajectory as the bears were unrelenting save for Thursday as the CBN rolled over c.97.0% of maturing bills worth NGN150.0bn via OMO sales. Consequently, the average yield in the OMO-bill market spiked by 74bps to 1.7% from 0.9% WoW.
At the start of the week, we estimated a net inflow of NGN239.8bn from FGN Bond coupon payment and maturing OMO bill. However, funding rates firmed up by 50bps WoW for the Open Buy Back (10.5%) and Over Night rate (11.0%) suggesting a tighter liquidity environment.
The bears held sway in the Bond market as they sold off instruments across the tickers. Notably yields expanded across the long (+131bps), Short (+100bps) and intermediate (+61bps) segments. Consequently, the average bond yield pointed higher by 97bps to settle at 8.1% from 7.1% on a WoW basis.
In the FX market, the Naira weakened at the Parallel market to NGN478.2/USD from NGN475.4/USD in the prior week. Further afield, turnover eased by 14.7% WoW in the Investors’ & Exporters’ Window (I&EW) to a weekly average of USD216.8mn vs USD306.9mn in the prior week. While the Naira stabilized in the I&E Window to close at an average of NGN394.2/USD vs NGN393.9/USD in the prior week.
We note that during the week, FGN Eurobond worth USD500.0mn matured, the settlement of which draws down on our foreign exchange reserve (USD36.4bn as of Thursday). Into the new week, we expect the selloffs to linger across the board as sentiments remain pessimistic.