(Greenwich Merchant Bank): The Fixed Income market was largely unchanged as yields across markets rose marginally to an average of 5.8% from 5.7% in the previous week.
The NT-bills market closed flat for the week, reflecting the mixed performance across the trading sessions. Thus, the average yield in the market remained at 1.5% from last week. In the coming week, investors’ focus tilt towards the Primary Market Auction (PMA) where the CBN will rollover maturing bills worth NGN128.2bn across the 91-day (NGN20.4bn), 182-day (NGN55.9bn) and 364-day (NGN52.0bn). We expect investors to continue to demand higher stop rates in the light of unabating inflationary pressure.
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Elsewhere, the OMO market traded with bullish bias which pushed yields lower by 30bps to 6.4% from 6.7% last week. We note the buying interest was sustained in the first three (3) trading sessions of the week while the market traded flat in the remaining sessions. Next week, we anticipate the maturity of OMO bills worth NGN476.4bn to hit the Banking system, furthering robust system liquidity.
In line with our expectations, funding pressure intensified to close the week at 20.0% and 20.5% apiece for the Open Buy Back and Over Night rates, which each stood at 4.5% and 4.8% last week. We however note funding pressure was benign in the early trading sessions of the week. We expect the liquidity level to improve next week given expected inflows from OMO bills (NGN476.4bn) and FGN Bond coupon payment of NGN49.9bn.
The selling pressure in the Bonds market eased this week as the yield curve expanded by 40bps to 9.4% from 9.0% WoW, compared to a 100bps surge in yields last week. Across the curve, the long (+55bps), the intermediate (+28bps), and short (+27bps) segments all closed bearish. During the week, the DMO sold NGN33.6bn, NGN28.9bn, and NGN18.0bn across the FGN MAR 2027, FGN MAR 2035, and FGN JUL 2045 instruments at 10.25%, 11.25% and 11.80%. We note that marginal rates cleared above market rate and were higher than the previous auction (7.98%, 8.74% and 8.95% for the three tenors accordingly). While marginal rates rose, the DMO only allotted NGN80.5bn out of the NGN150.0bn offer it brought to the market, while non-competitive allotment stood at a cumulative of NGN48.0bn. Next week we anticipate that investors will remain bearish, but momentum should be subdued.
In the Parallel FX market, the Naira fell by NGN2.80/USD from an average of NGN473.00/USD to NGN475.80/USD WoW. Similarly, at the I&EW, rates closed the week at an average of NGN409.43bn from NGN400.83/USD last week, representing a decline of NGN8.60/USD WoW.