Yields Continue To Drop As the Market Shrugs Off Increase Supply by The DMO August Auction

Tuesday, August 11, 2020 / 8:40 PM / By Zedcrest Capital / Header Image Credit: Brookings

FGN Bonds

The FGN Bonds market opened the day with wide spreads as market participants reacted negatively initially to the released April FGN Bond circular, which showed the DMO increasing the offered amount by N20bn across the offered tenors. Despite the weak open, demand from local investors continued to filter in and pressure yields on the 'auction bonds'. The 2035s and 2050s papers remained the toast of investors, as yields on both maturities ultimately closed the trade session 10bps. Bids also improved across some of the benchmark papers, pushing average yields across the curve lower for another consecutive session by c.12bps.

We expect the demand to persist in the interim and leading up to the monthly FGN bond auction, as locals welcome the improved auction offer amounts to match demand from maturing OMO maturities and bond coupon payments expected later this month.

Treasury Bills

At the OMO bills space, trade volumes continue to be low as local banks remain risk-off at current market levels at the short- to long-dated papers. Interests remained pegged on the mid-dated bills (January papers) with traded lower by 10bps for a consecutive session, closing at 4.00% on the offer.

We expect the markets to remain lethargic in the interim, as market participants hold their breath for a supply injection from the CBN to match OMO maturities of c.N88Bn scheduled for later this week.

Money Markets

Interbank rates remained stable in today's trade session, as local banks remain relatively liquid with no funding pressures on the horizon. System market liquidity improved to N211.47Bn positive opening, as OBB and OVN rates closed at 5.17% and 6.17% respectively.

We expect the market to remain stable at these levels heading into tomorrow's session.

FX Market

Transaction volumes improved in the IEFX window, as c.$31.93m changing hands between market participants in 327 deals, ranging between N380.00/$ and N387.00/$. The closing rates remained unchanged across the various market segments, as the market continues to wait on the Apex bank for supply of the greenback.

Eurobonds

The NGERIA Sovereigns resumed its bullish run in today's trading session, as demand improved across the sovereign curve, especially on mid-tenured papers, caused mostly by short-covering by market dealers. Yields compressed by an average of c.10bps across the sovereign curve. In the SSA space, the EGYPTs continued its rally for a second consecutive session, as prices on those papers consolidated with further gains (+50c) while the ANGOLs also strengthened (+25c).

The NGERIA Corps saw some profit-taking today, as sellers continued to offer most of the tracked papers. The ETINL 2024s remained the odd-on-out, as demand for that paper remained strong pushing yields further down by 59bps. 

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