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Nigeria_Fixed Income: Buying momentum weakens in T-bills market

Market commentary

• The CBN announced an OMO auction offering N30 billion on the 233DTM bill. However, the apex bank eventually sold N43 billion pegged at a stop rate of 10% (effective yield: 10.68%). Following the OMO announcement, interbank placement rates raced north, with the Call rate up 117bps to 4.92%. At the FX interbank market, the Naira depreciated 11 kobo to NGN199.07/USD, retracing from an intraday high of NGN198.77/USD.

• Buying momentum weakened in the T-bills trading session as market participants traded cautiously following the OMO announcement. Whilst modest demand remained evident across a few short dated maturities, sizeable selloff was recorded across most of the other maturities. Notably, whilst the yield on the 30DTM bill declined 38bps to 3.47%, the yield on the 16DTM bill advanced 64bps to 2.37%. The bond market however turned bearish (ahead of tomorrow’s auction) as selloff across all traded maturities in the space (save for 15.10% FGN APR 2017) steered yields 5bps higher on average. The most notable advancement in yields were recorded on the 15.54% FGN FEB 2020 and 12.40% FGN MAR 2036 bonds up 14bps and 10bps to 13.17% and 13.83% respectively.

• We expect the mixed trading sentiment to persist in the T-bills market at mid-week as buying activities continue to dominate the short dated maturities, whilst the longer end remains tepid. At tomorrow’s bond auction, the DMO will offer N105 billion worth of bonds across the 5-year: N15 billion, 10-year: N40 billion, and 20-year: N50 billion. We expect auction yields (particularly the 10 year and 20 year bonds) to close higher than secondary market level as market participants continue to stay away from high duration securities amidst anticipation of a rise in the April inflation figure and a possible rate hike at the MPC meeting scheduled for 23rd & 24^th of May. That said, we expect the bond market to trade cautiously ahead of the outcome of the auction, albeit with a bearish bias.