(Greenwich Merchant Bank): The Fixed Income market tilted bearish this week as yields across markets rose by 200bps to average 5.7% from 3.7% in the previous week. Although the NT-bills space closed bearish WoW, the market traded flattish in the first three sessions of the week as investors were cautious in the run-up to the Primary Market Auction (PMA) on Wednesday. Following a better-than-expected spike in stop rates in the PMA, average yield rose by 50bps to 1.5% from 1.0% last week, triggered by selloffs across the curve.
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We recall that Stop Rates at the PMA cleared higher as investors sought higher returns. Thus, the CBN sold the 91-day (NGN24.7bn), 182-day (NGN16.1bn), and 364-day (NGN90.1bn) instruments at 1.0%, 2.0%, and 4.0% apiece, from previous stop rates of 0.55% (91-day), 1.3% (182-day), and 2.0% (364-day), respectively. We observed that the total amount allotted at the auction (NGN130.9bn) was 77.1% of the offer (NGN169.8bn).
Farther on, the OMO market sustained a bearish momentum that lasted until the CBN’s OMO sales on Thursday. At the NGN169.0bn PMA, we noticed that the Apex bank maintained the stop rates for the 362-day bill at 10.10%. Also, it did not sell the bills at the upper range of bids just like it had done in the prior auction. Overall, the OMO yield curve expanded by 4.7 percentage points WoW to 6.7% from 2.0%. Next week, we anticipate the maturity of OMO bills worth NGN260.2bn to hit the banking system, furthering a robust system liquidity.
Funding pressures subsided this week, pegging the Open Buy Back and Over Night rate at 4.5% and 4.8% down from 17.5% and 18.0%, respectively. Save the maturing OMO bills, we do not expect any significant inflow into the financial system and on that basis, we project that funding pressure might intensify next week.
In the Bonds market, yields notched higher by 100bps WoW to log at 9.0% compared to its previous close of 8.0%. The expansion is attributable to the repricing of instruments across the tickers on the expectation of a reversal of the low-interest rate environment that ushered in the new year. Across the market, the medium (+170bps), the short (+114bps), and long (+30bps) segments all struck a bearish chord from last week.
In the new week, we expect investors to continue exiting their positions in search of opportunities to lock in higher yields, even as they pay attention to the January Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS) which should be published early next week. Importantly, market participants will be anticipating the DMO to offer NGN150.0bn evenly split across the FGN MAR 2027, FGN MAR 2035, and FGN JUL 2045 instruments.
In the FX market, the Naira advanced at the Parallel market after maintaining the NGN480.00/USD rate for nearly two weeks. WoW, the Naira improved by NGN2.80/USD to close at an average of NGN473.00/USD. Meanwhile, at the Investors’ & Exporters’ Window (I&EW), the rate weakened by NGN5.27/USD as it averaged NGN400.83/USD compared to NGN395.56/USD last week. We note that Friday’s close of NGN404.67/USD is the weakest the Naira has traded since NGN410.25/USD on December 31, 2020. However, turnover at the I&EW firmed up by 66.2% WoW to a weekly average of USD333.16mn from USD200.4mn.