• Wednesday, May 29, 2024
businessday logo


Dunn Loren Merrifield analysis of bond market


During the week under review, we observed a shift to a more cautious approach following a sell-off in the market; this came on the back of the OMO auctions that occurred throughout the week and the mid-week treasury bills auction.

At the treasury bills auction, N24.89 billion worth of 91-day treasury bills was offered and sold at the rate of 10.35 pecent against 10.49 percent at the previous auction, while N30 billion and N85.73 billion worth of 182-day and 364-day were offered and sold at the rates of 12.09 percent and 12.25 percent, respectively, compared with 10.68 percent and 10.71 percent at the last auction. Total subscription during the auction stood at N186.38 billion versus N327.99 billion at the last auction. In addition, a total of N46.53 billion worth of treasury bills across maturities was allotted on non- competitive basis. We however note the high cut-off rates on the 182-day and 364-day bills, which could be as a result of the low subscription levels at the auction.

At the open market operations window, a total of N300 billion worth of bills with tenors ranging between 168-days and 231-days were offered, while N101.25-billion was sold at the marginal rate of 12.50 percent. We observed that it was only one out of the three maturities offered that was sold i.e.191-days, due to high bid rates submitted by investors. This subsequently led to a special OMO auction at the end of the week.

At the “special OMO auction,” a total of N125.96-billion was subscribed for and sold at a fixed rate of 12.35 percent with a tenor of 182-days. In our opinion, this special OMO offer is not unconnected with the zero sales recorded on some of the OMO bills offered during the week; we believe that the special OMO auction is in view of the apex bank’s resolve to continually mop up excess system liquidity.

However, the over-the-counter (OTC) market witnessed a bearish trend as yields moved up significantly across all tradable maturities in reaction to the outcome of the mid-week treasury bills auction. On the average, yields moved by c.25bps. The highest increase came from the 1Ybenchmark security with 83bps, while the next came from the 3Y benchmark with 77bps, the least affected was the 5Y benchmark, which had no change.

In the week ahead, there will be OMO bills maturity worth N140.37 billion. In view of this, we expect the likely increase in system liquidity to be checked by the CBN’s open market operations. Otherwise, we expect the market to remain flat in the absence of any major market event.