In our review of activities for the previous week, we observed the influence of the mid-week treasury bills auction on activities across the market. This resulted in relative sustained intra-day volatility and subsequent stability as traders adopted a cautious approach whilst OTC trading of FGN bonds remained low as traders indicated preference for shorter tenured securities (treasury bills) due to their attractive yields.
During the treasury bills auction, we observed the marked increase in stop rates as N32.97 billion worth of the 91day-bill was offered and sold at 14.10% against N30.65 billion sold at 13.50% at the preceding auction; similarly, N45.00 billion and N60.00 billion worth of the 182day and 364day bills were offered and sold at 14.94% and 15.70% respectively compared to 14.14% and 13.30% at the preceding auction. We believe this development – which has been persistent in recent weeks – further underscores our view that investors remain resolute to optimize returns on the back of the domestic high interest rate regime.
Furthermore, we are of the opinion that the domestic financial markets may see the return of offshore investors in the weeks ahead as yields on shorter tenured securities become more attractive. This is in view of the fact that offshore investors had been exiting their positions in recent weeks in the face of rising inflation, the unresolved Eurozone debt crisis and decline in the value of the domestic currency. However, we see a probable reversal in the days ahead as yields on domestic securities trend northward. Our position is informed by the gradual shift of attention by investors to the Treasury bills market due to rising yields. Between early May and June 8th, average yields on Tbills have increased by circa 200 basis points (fig. 3).
In the week ahead, we expect levels of activity in the market to be moderate as a result of further decline in prices and system illiquidity.
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