N449.37bn inflows from maturing bills may moderate yield

HIGH activities bolstered by inflows from foreign portfolio investors at the fixed income market and the equities market helped to moderate yield last week.

But this trend may be bulked this week given the anticipated release of the bond calendar on today expected to spur mild sell-offs in the bond space, whilst tepid trading is expected to continue in the T-bills space due to liquidity constraints.

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Trading activities will also be dictated by the Monetary Policy Committee meeting and a bond auction scheduled for midweek.

This is in spite of this week’s total of N449.37 billion inflows from maturing bills, and more funds expected from foreign portfolio investors likely to hit the financial market this week.

With elevated liquidity from these sources, demand for fixed income instruments is seen pressured in the week with the result that rates may further decline after last week’s moderation in yield.

The sum of N381.54 billion is expected from maturing OMO bills and N67.82 billion in bond coupon payments which will offer support to system liquidity.

However, liquidity mop-up and forex intervention by the CBN are likely to exert upward pressure on the overnight lending rate.

Last week, the CBN sold N575 billion (though it offered N700 billion) across three OMO auctions on Monday, Tuesday and Thursday at the 11.9 per cent, 13.5 per cent and 15.0 per cent across three maturities.

The CBN also sold N152 billion (while N225 billion was offered) at its bi-weekly primary market auction (PMA), raising the stop rates across the three maturities from previous PMA levels to 11.0 per cent, 13.10 per cent and 15.0 per cent.

Meanwhile, the Interbank Call rate declined 467 basis points (bps) to close at 15.33 per cent week-on-week.

Despite the mop ups and the consequently constrained system liquidity, trading in the treasury bills market was positive with yields declining 42 basis points (bps) week-on-week to -21bps.

Particular, the yields on the 62 day-to-maturity (DTM) and 132DTM bills declined 213bps and 220bps respectively to settle at 12.32 percent and 11.63 percent.

Meanwhile, trading in the bond space was also positive, with yields declining 7bps w/w (+10bps). Specifically, the yields on the 16.28 percent FGN MAR 2027 and 12.40 percent 18-MAR-2036 bonds declined 34bps and 25bps respectively to close at  15.04 percent and 15.26 percent respectively.

At the money market, the Naira appreciated N2.15 week-on-week at the I&E FX Window to settle at N362.79 against the dollar and appreciated N0.50 week-on-week to settle at N360.50 in the parallel market.

The Naira is expectex to remain relatively stable across the various windows of the currency space as the CBN maintains interventions in the FX market.

The overnight lending rate moderated by 633 bps w/w to 16.17 percent, against previous week’s close of 22.50 percent.

Rates remained elevated throughout the week, amidst the CBN’s N574.59 billion   OMO interventions. However, inflows of matured OMO bills (NGN560.92billion), treasury bills (NGN73.45 billion), and bond coupon payments (NGN106.03 billion) boosted liquidity towards the end of the week, resulting in a rate decline.

Activities in the treasury bills market were bullish driven by (1) the increase in system liquidity, and (2) increased demand from foreign investors. Consequently, yields fell 40 bps to close the week at 14.91 percent on average. Buy sentiment was concentrated at the short (-128 bps) and mid (-1 bp) segments, amid demand for the 55DTM (-226 bps) and 132DTM (-220 bps) bills, respectively.

Conversely, yield expanded at the long (+4 bps) end of the curve, following a selloff of the 237DTM (+106 bps) closed flat.

At this week’s primary action, the CBN fully allotted N225.45 billion worth of bills – N5.85 billion of the 91-day, N26.60 billion of the 182-day and N119.55 billion of the 364-day – at respective stop rates of 11.00 percent (previously 10.899 percent), 13.10 percent (same as previous auction), and 15.00 percent (previously 14.50 percent).