DMO Gains as FGN Bond Auction, Raising 30-Year Debt at 9.95%

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It was an edgy trade session yesterday as market participants were very jittery with their quotes as all eyes remained fixed on the DMO’s monthly bond auction. Yields continued to drop across the benchmark curve as the market priced in expectations for lower stop rates due to perceived heavy demand at the auction.

The 2049s and 2050s papers moved the most intraday, with offers dropping as much as 45bps on the average even crossing below the 10.00% mark. By and large, yields compressed by c.17bps to end the session.

At the primary auction, heavy demand for bonds enabled the DMO to significantly drop stop rates by an average of 190bps across the offered tenors, the second single highest jump seen this year. With an average bid-to-cover ratio of 3.62X, the DMO comfortably issued a total of N177Bn across the 4 offered tenors, including the new 2045s paper.

The auction results point to a very active session today, as we expect the demand unmet at the auction to enhance secondary market activity. We expect the yield curve to continue its downward trajectory as the market adjusts to the auction results.

Treasury Bills
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The T-Bills market continued to trade on a muted note, as demand for OMO bills dwindled as expectations for an OMO auction by the CBN increases due to continued system liquidity.

The OMO yield curve has somewhat flattened recently, as pockets of demand popped up on a few short-dated (October papers) and long-dated maturities (May & June papers) which traded at the mid 5.00% levels. The benchmark OMO yield curve moved down by c.58bps on the average at the close of the day.

At the NTB space, we continue to see the dwindled activity as demand improves for the FGN Promissory Notepaper ahead of NTBs, as local investors continue to hunt for better yielding short-term interest rates. Rates on the benchmark NTB curve dropped by c.88bps on the average.
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We expected trading activity in T-bills to remain muted as the expectation for an OMO auction issuance continues to linger. While the offshore players maintain their observatory stance of the market, we expect offers to improve mostly across the long-dated papers.
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Money Markets

System liquidity remained liquid opening the day approximately N443.28bn positive. Consequently, OBB and OVN slid slightly, dropping by 25bps on the average on both the OBB and OVN rates closing the day at 1.90% and 2.50% respectively.

While expectations for an OMO auction issuance remain high due to the improved system liquidity position, we don’t expect any big jump in Money Market rates in the interim.

FX Marke-

The Naira had a sleepy day, with rates remaining unchanged at all the market segments D/D. Pressure on the Naira continues to pile up at both the official and parallel markets as participants await direction from the CBN concerning supply.

We expect the gradual depreciation of the Naira at the parallel market to persist in the interim, pending any significant supply boost from the Apex bank.

Eurobonds

The rally in the NGERIA Sovereign tickers lost some steam in yesterday’s session, as the markets opened on a flattish note with offers improving at the long-end of the sovereign curve. By midday, the general positive sentiments in SSA papers saw another jolt of demand in the NGERIA papers. The SSA papers had another generally positive session, with gains seen on the GHANA (+0.125), KENYA (+0.375), and NGERIA (+0.125) papers with the ANGOL (+1.00) papers leading the pack as the market waited for the IMF decision on a bailout for Angola. Yields on the ANGOL closed lower at 12.05%.
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The NGERIA Corps tickers saw a fair amount of positive interest, with the bank papers better bid with ACCESS 21s (+132bps) leading the gainers’ rally with some pullbacks seen on the UBANL (-40bps) and SEPPLN 2023s (-18bps).

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