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Nigeria_Fixed Income: Improved liquidity supports demand for T-bills

Market commentary

• The CBN announced an OMO auction offering N40 billion on the 237DTM bill and eventually sold N46.5 billion – pegged at a stop rate of 9.5% (effective yield:10.12%). However, following an improvement in system liquidity to N405 billion (Prev: N365 billion), the Interbank Call rate declined 20bps to 3.67%. At the FX interbank market, the Naira remained unchanged at NGN199.05/USD.

• Whilst trading on the mid-long end of the T-bills market turned largely quiet at week close, sentiment remained upbeat on the short end of the space buoyed by the marginal improvement in system liquidity. Consequently, yields declined 14bps on average. The most notable declines were recorded across the 27DTM (-43bps), 62DTM (-95bps), and 328DTM (-62bps) bills, closing at 4.23%, 5.62%, and 10.84% respectively. The bond market however traded largely bearish as selloffs across most maturities drove yields 21bps higher on average. Particularly, yields on the 15.10% FGN APR 2017 bond and 16.39% FGN JAN 2022 bonds advanced 23bps and 25bps to 11.31% and 12.58% respectively.

• Whilst we expect the system liquidity to remain supportive of demand on the short end of the T-bills space (barring any OMO auction), we foresee a relatively cautious trading pattern as Wednesday’s PMA comes in focus. However, we expect mixed sentiment to resurface in the bond market at week open as traders continue to cherry-pick across the space.