Fixed Income Market: Special Bills Drifts the Market in Search of Direction

Weekly Market Review

(Greenwich Merchant Bank): Activities in the Fixed Income market were largely bearish and speculative as market players sought clarity regarding the sale of “Special Bills” to banks as announced by the CBN.

Following large sell-offs witnessed at the Bond, NT-bill, and OMO-bill market, average yield across the fixed income market spiked by 41bps WoW to settle at 1.9% from 1.5% in the prior week. The average yield at the NT-bill market soared for the week to 0.5% from 0.1% in the prior week as investors sold off their bills in anticipation of the influx of the “Special Bills”.

Investors lost interest in all papers save the 14 OCT 2021 which closed the week bullish. In a similar tale, the OMO-bill market closed bearish as offers filtered in all through the week. The average yield in the OMO-bill market moved northward by 24bps WoW to 0.4% from 0.2%.

In its scheduled Primary Market Auction (PMA), the CBN offered and allotted bills worth NGN50.9bn of NGN102.9bn worth of subscription received at 0.010% (prev. 0.022%) for the 91DTM, 0.6% (prev. 0.09%) for the 182DTM and 3.2% (prev. 0.15%) for the 364DTM. The average bid-to-cover ratio for the auction stood at 4.5x as investors scurried for the sparse bills offered.

Furthermore, the anticipated “Special Bills” worth NGN4.1tn was issued to Deposit Money Banks on Thursday by the Apex Bank at 0.5% for 81DTM (21 March 2021).

Nevertheless, the market is yet to grasp the full nature of the “Special Bills” and its modalities. On this note, we expect the uncertainty around the “Special Bills” to tilt the market downward.

Moving on, Money Market rates remain in single digits, the Overnight and Open Buy Back closed at 0.88% and 0.5% from 4.25% and 3.63% respectively in the prior week.

The Bond market was not spared, investors sold off holdings following the uncertainty prevailing in the market, thereby, elevating average yields by 65bps to 4.7% from 4.1% at the close of trading in the prior week.

The Debt Management Office (DMO) in its bond offer secular published is scheduled to sell bonds worth NGN60.0bn across the 12.50% FGN MAR 2035 and the 9.80% FGN JUL 2045 papers. We expect the prevailing uncertainty in the market and the recent sell-offs to impact marginal rates in the offer northward.

Forging ahead to the new week, we expect the uncertainty in the market to continue to fuel bearish sentiments in the market as investors are yet to catch a full grasp of the nature and impact of the “special bill”.

The Naira remained flat at the Parallel market, closing at NGN375/USD while turnover spiked by 22.4% in the Investors & Exporters Window (I&EW) to a weekly average of USD161.4mn vs USD131.8mn in the prior week.

Nevertheless, the Naira strengthened by NGN1/USD in the I&EW to close at NGN394.0/USD vs NGN395.0/USD in the prior week.

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