(Greenwich Merchant Bank): The Fixed Income Market commenced trading in the new year on a relatively bearish tale from the prior trading session to settle the average yield across the market at 2.57% from 2.39%. Investors extended the run of profit taking in both the Bond and OMO-bill Market into the new year.
Investors’ attraction to NT-bills at the short end of the market drove the NT-bill curve into a positive close. Thereby, average yield in the NT-bill market eased by 4bps to settle at 0.42% from 0.46%. On the flip side, the OMO-bill market witnessed lot of offers as investors sought to offload chunk of bills at the tail of the curve. Consequently, average yield in the OMO-bill market spiked by 27bps to 0.85% from 0.58%.
The Apex bank in a scheduled Primary Market Auction (PMA) will rollover bills worth NGN232.4bn across the 91DTM, 182DTM and 364DTM. In light of a robust system liquidity (NGN1.0trn), we expect to record a robust bid-to-cover ratio in the auction whilst the CBN will keep rates relatively flat across the curve despite investors seeking more yields in the PMA.
Despite a buoyed system liquidity (NGN1.0tn), Money Market rates spiked into the upper band of the single digit. Thus, the Overnight and Open Buy Back closed at an average of 8.7% for the week, juxtaposed with an average 0.7% in the prior trading session.
The Bond Market closed the week as the worst performing asset in the Fixed Income Market following continued profit taking by market players across the curve. We witnessed a lot of profit taking in the FEB 2028 and MAR 2035 maturities. Consequently, average bond yield steeped northward by 32bps to 6.44% from 6.12% at the close of trading in the prior session.
The FX market opened the year relatively quiet as the Naira strengthened in the Investors and Exporter Window (I&EW) following a blemish session at the close of the year. In the I&EW, the Naira closed at NGN393.5/USD from NGN410/USD in the corresponding period prior week representing NGN16.5 upside while at the Parallel Market, Naira weakened against the USD to settle at NGN472.0/USD from NGN470.0/USD in the prior week. In terms of turnover, the FX market softened to an average of USD35.3mn from USD176.6mn in the prior session.
Forging into the new week, we expect the NT-bill market to remain order driven bolstered by the robust system liquidity and the sparse security available in the market. We anticipate continued sell off at the belly and tail of the bond market while investors will cherry pick high yielding bonds at the head of the curve in a bid to book lingering liquidity in the system.