Fixed Income Market: Bears Show No Respite   

March 19 (Lagos) - The Fixed Income Market remained bearish, following heavy selloffs seen across the markets in response to expectations of increased yields across the curve. The contempt depicted across all maturities signals as optimistic sentiment of continued spike in rates at the primary market. 

Thereby, average yield in the fixed income market spiked by 52bps to close the week at 6.5% from 6.0% in the prior week. Market players flooded the NT-bill secondary market with offers in the expectation of better rates at the scheduled Primary Market Auction (PMA) in the week. Thus, yields on the average across the NT-bill market spiked by 78bps to 3.5%, from 2.7% in the prior week.

Similarly, the OMO-bill market closed bearish as investors offloaded bills across the tail of the curve. Consequently, the average OMO-bill yield soared by 53bps to 6.6% from 6.1%. The Apex bank in its scheduled PMA offered bills worth NGN47.1bn, albeit allotting NGN116.9bn or 148.3% over its initial offer. 

The expanding bid range did not wither, thus forcing the Apex bank to allot 364DTM at 7.00%, 50bps premium over the last PMA, while keeping the 91DTM and 182DTM flat at 2.00% and 3.50% respectively. Following a robust system liquidity in the week, the bid-to-cover ratio remained elevated settling at 2.5x. Also, the CBN in an Open Market Operation (OMO) sold bills worth NGN100.0bn across the 96-DTM, 180-DTM, and 362-DTM at unchanged rates of 7.00%, 8.50%, and 10.10% respectively from the previous auction.

Despite a robust liquidity level in the interbank system at the start of the week, primary market activities and a special cash reserve ratio (CRR) debit mopped up liquidity for the week, which settled at an average NGN249.6bn vs NGN114.6bn in the prior week. Consequently, Money Market rates remained elevated for the week, as the Overnight and Open Buy Back closed at an average of 25.3% vs 13.8% in the prior trading week.

The Bond Market closed the week bearish, with huge selloffs across the curve save the 23-MAR-2025 paper, as market players retreated to the side-lines in anticipation of the outcome of the forthcoming Monetary Policy Committee (MPC) meeting and the scheduled bond PMA. As a result, the average bond yield increased by 26bps to 9.5%, from 9.3% at the close of trading in the prior week.

The FX market traded relatively calm this week. The Naira steadied at NGN410.00/USD WoW at the Investors and Exporter Window (I&EW). In terms of turnover, the FX market retracted marginally by 5.4% WoW at the I&EW to an average of USD82.4mn from USD87.1mn at the prior session. On a familiar feat, the Naira closed flat at the Parallel Market against the USD to settle at NGN485.00/USD, from the prior week.

We expect a quiet session at the start of the coming week across the secondary market as market players anticipate the outcome of the forthcoming MPC meeting and the scheduled bond auction. While the interbank system will remain robust hinged on expected inflows of NGN70.9bn in coupon payment, barring any special debits.

reporting for on Friday, March 19 2021 from Lagos, Nigeria

Source - analysts at Greenwich Securities ltd in Victoria Island
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