Investors’ rush for FG bonds pushes DMO to lower rates by 190bps

The fixed income market recorded heavy demand for the Federal Government of Nigeria (FGN) bonds by investors, which led to a significant drop in stop rates by 190bps on Wednesday.

 The Debt Management Office (DMO) issued a total of N177 billion bonds across the  four offered tenors, including the new 2045s paper, according to a report by Zedcrest Capital Limited.

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 about 17bps to end the session.

“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,” analysts at Zedcrest said.

The T-Bills market continued to trade on a muted note, as demand for Open Market Operation (OMO) bills dwindled.

Expectations for an OMO auction by the CBN increased due to continued system liquidity. System liquidity remained liquid opening the day approximately N443.28bn positive.

 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 about 58bps on the average at the close of the day.

Dwindled activity continued at the NTbills space 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 about 88bps on the average.

The analysts 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”.

The Overnight rate declined by 0.30 basis points to close at 2.50 percent on Wednesday, the Open Buy Back (OBB) rate also declined by 0.20 percent to close at 1.90 percent.

While expectations for an OMO auction issuance remain high due to the improved system liquidity position, the analysts do not expect any big jump in money market rates in the interim.

At the foreign exchange market, dollar was trading at N472 on Thursday, indicating stability in some parts of Lagos black markets while weakening by N2.00k in other areas where it traded at N470 since on Monday.

Naira lost N1.00k as the dollar was sold at N473 on Thursday as against N472 on Wednesday at the retail Bureau.

The market opened with an indicative rate of N388.36k, signaling an appreciation of N0.29k when compared with N388.65k opened with on Wednesday, data from FMDQ revealed.