Bonds, Treasury Bills Trade Cautiously Ahead of Auction

Bonds, Treasury Bills Trade Cautiously Ahead of Auction

Bonds, Treasury bills instruments trade cautiously on Monday ahead of Central Bank of Nigeria’s primary market auction scheduled for the week, according to its calendar. The Central Bank of Nigeria will conduct a treasury bill primary market auction to roll over a total of N200.9 billion worth of bills on Wednesday.

“At the auction, we expect a slight upward bias towards a rate hike, considering the increased bid range at the previous auction”, United Capital analysts said in a note.

However, some analysts predicted a robust subscription level at the auction as the market seeks higher return amidst the expectation of a further slowdown in headline inflation rate for September 2021.

Inflation rate slowdown is a downside risk to upward yield repricing, analysts told MarketForces Africa, saying that a low-interest rate environment and large issuance in the first half of the year has doused the possibility of a sizeable re-pricing.

Heavy demand for fixed income instruments as explain by subscription records has given the policy authority opportunity to negotiate a better rate for the Nigerian government.

Debt Management Office has put forth deliberate measures to reduce debt service costs from the local market, a move some critics call financial repression given the steep inflation rate in the country.

Robust funding level has continued to spur subscription in the primary market auction, though the spot rate on the long-dated instruments has been stable in recent times.

In the money market, open buy back (OBB) and Overnight lending rate (OVN) dropped further on Monday, according to data obtained from the FMDQ Exchange platform. Open buy back sees a 400 basis points decline to 10%.

Also, the overnight lending rate contracted by 383 basis points to 10.67%, due to what analysts at Cordros Capital consider as the absence of significant funding pressures on the system.

The investment firm report shows that trading in the Nigerian treasury bills secondary market was mixed, albeit with bullish bias, as the average yield pared by 2 basis points to 5.3%.

Across the benchmark curve, the average yield was flat at the short and mid segments but contracted at the long (-4bps) end due to demand for the 262 Day to maturity (-65bps) bill.

Elsewhere, the average yield at the open market operations (OMO) segment was flat at 6.5%. In the federal government bond secondary market, there were mixed results today but with a bearish bias, as the average yield expanded slightly by a basis point to 11.3%.

Cordros Capital report indicates that across the benchmark curve, the average yield was flat at the short and mid segments but expanded at the long (+3bps) end following sell-off of the APR-2049 (+11bps) bond.

In the coming session, analysts at Vetiva capital said in a report they anticipate a cautious start to trading in the NTB market ahead of the PMA slated for Wednesday, foresee a continuation of a similar trading pattern in the bonds market.

“We expect a quiet trading session in the secondary sovereign bonds market as investors will sit on the sidelines awaiting the outcome of the scheduled Nigerian treasury bills auction”, United Capital also hinted.

Analysts said they expect to see some CBN mop-up activity on the back of N110.0 billion worth of open maturities.#Bonds, Treasury Bills Trade Cautiously Ahead of Auction