Saturday, January 29, 2022

    Bond Yield Crashed to 13.17% ahead of DMO’s Auction

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    Bond yield compressed five basis points on Monday to settle at 13.17% ahead of the Nigerian Debt Management Office (DMO) auction scheduled for Wednesday.

    The DMO’s monthly bond auction is scheduled to hold on Wednesday. At the auction, the DMO will be looking to raise N150 billion, split across three tenors: MAR 2027, MAR 2035, and APR 2049.

    “The last auction cleared at 12.25%, 13.34%, and 13.85% respectively, and odds favour a higher marginal rate at the next auction”, Chapel Hill Denham said.

    In the money market, funding pressures increased today, due to provisioning by Deposit Money Banks (DMBs) for the retail FX auction.

    According to Chapel Hill Denham, the Open Buy Back and Overnight rates jumped by 11.88% and 13.38% to 26.88% and 28.88% respectively.

    Also, analysts said sentiments were broadly bullish today in the fixed income market, particularly in the bond market.

    At the front end of the curve, the Treasury Bills and open market operations (OMO) benchmark curve closed flat at an average of 4.76% and 8.10% respectively.

    Meanwhile, the benchmark bond yield curve compressed by an average of 5bps to 13.17%, thanks to recovery at the short (-3bps to 11.88%), intermediate (-6bps to 13.36%) and long (-6bps to 13.96%) end of the curve.

    At the treasury bill auction which was held today, the CBN offered N117.6 billion worth of bills, split across three maturities: 91-day (N24.7 billion), 182-day (N10.0 billion), and 364-day (N82.8 billion).

    The subscription level was decent at 2.0x, up from 1.7x previously as the CBN allotted N139 billion. Auction stop rate increased by 50bps on the 91-day to 2.50%, while the 182-day and 364-day were unchanged at 3.50% and 9.75% respectively.

    In a related development, the Nigerian local currency, naira continued to trade within a tight band at all segments of the FX market.

    In the Investors and Exporters Window, the naira weakened against the dollar by 0.24% or 1.0 to close at 411.67. In The parallel market, the local currency also weakened marginally against the USD by 0.21% or 1.00 to 484.00.

    However, the FX rate remained unchanged in the Official and Secondary Market Intervention Sale (SMIS) segments at 379.00 and 380.69 respectively as external reserves extended decline, closing lower by 0.5% week on week to US$34.58 billion.

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