Treasury Rate Swells on Investors Selloffs amid Liquidity Pressure
The average yield at the Nigerian Treasury bill segment swelled 20 basis points to 6.9% as market participants sold off positions to meet short term funding obligations.
In the fixed income market, participation has remained cold as investors are waiting for catalysts to drive higher yields. The central bank monetary policy committee is expected to meet next week to decide on key policy rates.
Analysts consensus remain that the Central Bank of Nigeria (CBN) will maintain a tight fist on policy rates with no change in view amidst disinflationary readings for third months.
In the coming week, Cordros Capital analysts maintained a view of a higher average yield on T-bills given that they are expecting system liquidity to remain strained.
“Also, we expect quiet trading at the Nigerian Treasury Bill market as participants position for the primary market auction (PMA) scheduled to hold on 29 July, with the CBN set to roll over N216.19 billion worth of maturities”, analysts said in a market report.
Pressures continued to mount on financial system liquidity as inflow falls behind outflow, draining liquidity position while interbank rates witnessed an upward adjustment.
The overnight rate expanded by 24 percentage points week on week to 28.8%, as debits for cash reserves ratio, N137.97 billion for FBN bonds and CBN’s weekly auctions outweighed system inflows from FAAC disbursements worth N428.14 billion, FGN bond coupon payments N134.74 billion and OMO maturities of N20.00 billion.
“We expect the overnight rate to remain elevated in the coming week, as expected inflows from FGN bond coupon payments worth N53.28 billion and OMO maturities worth N16.84 billion may not be significant enough to saturate system liquidity”, Cordros analysts said.
Analysts market report said the Treasury bills secondary market extended its bullish run this week, following sustained demand for high yielding open market operations (OMO) instruments.
Thus, the average yield across all instruments contracted by 28 basis points to 7.8%. Across the market segments, the average yield at the OMO segment contracted by 73bps to 8.6% in the absence of fresh supply from the CBN.
In the secondary market, Bonds closed the week on a bullish note as yields adjusted to reflect the lower rates at Monday’s auction, and market participants looked to the secondary market to fill unmet demand.
Consequently, analysts said the average yield contracted by 7bps to 12.1% in the week.
Across the benchmark curve, the average yield decreased at the short (-7bps), mid (-7bps) and long (-10bps) segments due to investor’s demand for the JAN-2026 (-17bps) and MAR-2027 (-12bps) and JUL-2034 (-39bps) bonds, respectively.
At the bond auction, the debt management office (DMO) offered bond instruments worth N150.00 billion to investors through re-openings of the 13.9800% FGN FEB 2028 Bid to offer ratio settled at 1.13x with stop rate coming at 12.35%, from 12.74%.
Also, 12.4000% MAR 2036 saw a bid to offer of 1.47x as the stop rate came at 13.15% from 13.50% at the previous auction. In addition, 12.9800% FGN MAR 2050 received a bid to offer 3.13x with a stop rate of 13.25% from 13.70%.
“We note that the demand was less given the N286.11 billion subscription with a bid to offer printed at 1.9x compared to June’s auction when the subscription was N417.48 billion and Bid to offer of 2.8x.”
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Analysts said The DMO eventually under-allotted instruments worth N137.97 billion, resulting in a bid-to-cover ratio of 2.1x.
“In the coming week, we expect investors to take advantage of the increased supply in the market and realign their positioning on the yield curve in anticipation of further decline in bond yields”, Cordros added.
Treasury Rate Swells on Investors Selloffs amid Liquidity Pressure
