Short Squeeze Pushes Bond Yields Further Down

Proshare

Wednesday, February 24, 2021 / 9:54 AM / By Zedcrest Capital / Header Image Credit: iStock


Proshare Nigeria Pvt. Ltd.


FGN Bonds

Yields continued to dip in the Bond Market, as demand from market participants covering short positions persisted for another consecutive trading session. Supply to meet the short-covering demand remained sparse, with bids improving consistently throughout the day with a few trades crossed. The long-end saw most of the trading activity, with the 2034s eventually trading at 11.20% levels (20bps lower than opening quotes). Consequently, yields dropped by c.9bps on the average across the benchmark bond curve.

 

We expect the short-covering to continue for most of the week but maintain a cautious stance against taking on risk at these levels. We also not that end-clients continue to remain on the sidelines for the time being, most likely due to the huge leaps in yields month-on-month seen at the Bond auctions so far this year.

 

Benchmark FGN Bonds

 

Description

Bid (%)

Offer (%)

Day Change (%)

12.75 27-Apr-23

9.00

6.00

0.39

14.20 14-Mar-24

8.99

6.00

(0.01)

13.53 23-Mar-25

10.20

6.90

0.20

12.50 22-Jan-26

10.20

9.87

(0.17)

16.29 17-Mar-27

10.55

10.01

(0.47)

13.98 23-Feb-28

10.75

10.25

(0.27)

14.55 26-Apr-29

10.75

10.25

(0.30)

12.15 18-Jul-34

11.45

11.20

0.10

12.50 27-Mar-35

11.45

11.20

(0.05)

12.40 18-Mar-36

11.45

11.20

(0.20)

16.2499 18-Apr-37

11.45

11.20

(0.20)

9.80 24-Jul-45

11.60

11.30

(0.10)

14.80 26-Apr-49

11.70

11.30

0.00

12.98 27-Mar-50

11.70

11.35

(0.15)

 

Treasury Bills

Activity in the Treasury bills space picked up following a boost to interbank system liquidity from OMO maturities posted. We observed continued demand for short- to mid-dated maturities, as the August papers traded around 4.80% while the October papers crossed hands at 6.10% levels. At the long-end, offers improved as we noted the February papers trading slightly above the 9.00% mark.

 

We expect demand to continue at the open of trading, albeit on a quieter note as the focus once again shifts to the NTB primary auction. Expectations for higher rates persist but are not as aggressive as the amounts on offer provide the DMO with some room to keep rates fairly stable.

 

Primary Market Auction Expectation

NTB - February 24, 2021

Tenor

Offer (N'bn)

Expected Rate (%)

Previous Rate (%)

91 days

20.37

1.00 - 1.50

1.0000

182 days

55.85

2.00 - 2.50

2.0000

364 days

52.00

4.00 - 4.45

4.0000

 

Benchmark OMO Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NGOMOB 0 03/02/21

11.00

0.03

0.00

NGOMOB 0 05/11/21

11.00

0.03

0.00

NGOMOB 0 06/08/21

11.00

0.03

0.00

NGOMOB 0 08/10/21

12.00

0.05

0.00

NGOMOB 0 09/07/21

12.00

0.05

0.00

NGOMOB 0 10/19/21

12.00

0.07

0.00

NGOMOB 0 11/02/21

12.00

0.07

0.00

NGOMOB 0 12/07/21

13.50

0.07

0.00

NGOMOB 0 01/13//22

12.00

0.07

0.00

 

Benchmark NT-Bills

Description

Bid (%)

Offer (%)

Day Change (%)

NIGTB 0 03/11/21

11.00

0.03

0.00

NIGTB 0 04/29/21

11.00

0.03

0.00

NIGTB 0 05/13/21

11.00

0.03

0.00

NIGTB 0 06/10/21

11.00

0.03

0.00

NIGTB 0 07/01/21

12.00

0.05

0.00

NIGTB 0 08/26/21

12.00

0.05

0.00

NIGTB 0 09/09/21

11.00

0.05

0.00

NIGTB 0 10/14/21

12.00

0.07

0.00

NIGTB  0 11/11/21

12.00

0.07

0.00

NIGTB  0 01/11/22

13.50

0.07

0.00

 

 

Money Markets

Money market rates dropped by a whooping 1325bps on the average boosted by OMO maturities of c.N423Bn credits to the system. OBB and OVN rates closed the day at 1.75% and 2.00% respectively, as system liquidity of c.N659Bn eased funding pressures on local banks.

 

We expect these low levels to be maintained for most of the week, with the CBN expected to maintain its volumes at the OMO auction expected later in the week.

 

Money Market Rates

 

Current (%)

Previous (%)

Open Buy Back (OBB)

1.75

15.00

Overnight (O/N)

2.00

15.25

 

FX Market

Supply in the I&E FX window improved from export proceeds as traded volumes improved by 135% d/d (c.$123mio traded). Participants were bided between N388.75$ and N429.75/$ causing the closing rate to appreciate by 0.34% d/d to close at N408.60/$.

 

The I&E FX window closed the trading session on a positive note as volumes traded ($62.69mio) increased significantly by 54% D/D while most banks remained firmly bided between N390.00/$ and N423.15/$, with the closing rate closed stronger at N407.80/$.

 

FX Market

Current (N/$)

Previous (N/$)

CBN Spot

379.00

379.00

CBN SMIS

380.69

380.69

I&E FX Window

408.60

410.00

Cash Market

479.00

478.00

Transfer Market

492.00

492.00

 


Eurobonds

Trading activities in the Eurobonds paused as the markets awaited the US FED Chair's speech for a view on the direction of yields in the US papers and its attendant effects on the SSA Space. In his speech, Jerome Powell stated the FED's commitment to its growth policies easing concerns of a slowdown to its large-scale bond-buying program.  The NIGERIA Sovereigns traded sideways for most of the session, with some offshores looking to switch into longer duration in anticipation of an accommodative stance from the US FED's speech. Yields compressed slightly by c.1bps by the end of trading.

 

Bids improved across most of the tracked NIGERIA Corps tickers, with demand most evident on the Access 2021s and SEPPLN 2023s with saw yields compress by c.98bps and c.135bps respectively.


Proshare Nigeria Pvt. Ltd.



Proshare Nigeria Pvt. Ltd.



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