By Babajide Komolafe

THE quest for higher yields which triggered 326 percent oversubscription for treasury bills and rise in the prices of FGN bonds last week is expected to persist this week.

Results of trading in government securities (treasury Bills, TBs) last week showed oversubscription of N1.67 trillion or 468 percent, as investors demanded N2.9 trillion worth of TBs, as against N515.11 billion offered by the Central Bank of Nigeria, CBN.

In the primary market the CBN offered and sold  N115 billion worth of TBs while total subscription stood at N727.35 billion. In the secondary market the CBN offered N400 billion while total subscription stood at N1.37 trillion, prompting the apex bank to sell N1.07 trillion.

CBN Headquarters

However, the 364-Days TBs dominated investor’s interest, accounting for 52 percent or N1.52 trillion of the total subscription due to higher stop rates offered on the bills. Average stop rate on the 364-Days bills stood at 14.34 percent while average stop rates for the 91-days and 184 Days bills stood at 11.4 percent and 13.3 percent respectively.

However, the inability of the CBN to accommodate total subscription for TBs, resulted into excess liquidity which prompted cost of funds to fall in the interbank money market.

Data from FMDQ showed that interest rate on Collateralised (Open Buy Back, OBB) lending fell by 250 basis points (bpts) to 16.33 percent last week from 18.83 percent the previous week. Similarly interest rate on Overnight lending dropped by 283 bpts to 17.42 percent last week from 20.25 percent.

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This trend is expected to continue this week, given the unmet subscription for TBs of N1.73 trillion and expected inflow of N229.6 billion from maturing TBs.

The quest for higher yield also triggered increased demand for FGN Bonds in the Over-The-Counter (OTC) segment, leading to rise in bond prices. Analysts at Cowry Assets projected further rise in bond prices this week as investors intensify demand.

In their review of the market they stated: “In the just concluded week, the value of FGN bonds traded at the over-the-counter (OTC) segment further rose for all maturities tracked: the 5-year, 14.50% FGN JUL 2021 paper, the 7-year, 13.53% FGN MAR 2025 note, the 10-year, 16.29% FGN MAR 2027 debt and the 20-year, 16.25% FGN APR 2037 bond appreciated by N1.41, N2.94, N2.95 and N4.59; their corresponding yields moderated to 14.44 percent  (from 15.16 percent ), 13.90 percent  (from 14.65 percent), 14.13 percent  (from 14.73 percent ) and 13.84 percent  (from 14.48 percent) respectively.

“Elsewhere, the value of the FGN Eurobonds traded at the international capital market appreciated for most maturities tracked amid sustained buy pressure – the 10-year, 6.75% JAN 28, 2021 paper and 30-year, 7.62% NOV 28, 2047 paper rose by $0.18 and $1.15; their corresponding yields moderated to 4.85 percent  (from 4.97 percent ) and 5.40 percent  (from 5.40 percent) respectively.

“In the new week, we expect FGN bond prices to increase, with corresponding fall in yields,  at the OTC market amid expected ease in financial system liquidity.”

Naira appreciates

On the foreign exchange scene, the naira appreciated in the parallel market and in the Investors and Exporters (I&E) window even as the CBN sustained its weekly intervention in the foreign exchange market.

The naira appreciated by 50 kobo in the parallel market as the exchange rate for the market dropped to N358.5 per dollar last week from N359 per dollar the previous week.

In the I&E window, the  naira also fell by 46 kobo as the indicative exchange rate fell to N361.03 per dollar last week from N361.49 per dollar the previous week.

During the week, the CBN injected $210 million into the interbank foreign exchange market. The wholesale segment received $100 million while the Small and Medium Enterprises (SMEs) segment received $55 million. Similarly, customers requiring foreign exchange for invisibles such as tuition fees, medical payments and Basic Travel Allowance (BTA), among others, were also allocated $55 million.