Treasury Yield Falls as Market Reacts to Lower Spot Rates
Nigerian Treasury bill average yield falls 100 basis points to 5.9% as fixed income market participants reacted to lower stop rates at the primary market auction this week.
Trading activities in the fixed income space has been slow down due to unimpressive returns and low catalysts to propel upward yield repricing. Investors have been earning negative returns due to steep inflation readings.
Currently, the benchmark interest rate would remain tight for the third quarter as the monetary policy committee held key policy rates constant at the just-concluded meeting for July 2021.
Meristem Securities Limited had projected that subscription level will determine the direction of yield following a slowdown in yield repricing projected by analysts at Atlass Portfolios.
At the bi-weekly Treasury bill primary market auction, the Central Bank of Nigeria (CBN) offered bills worth N216.19 billion and eventually allotted N265.24 billion due to oversubscription.
In its market report, Cordros Capital Limited said a total sum of N3.17 billion were for 91 Day instruments, N3.54 billion for 182- day and N258.53 billion for 364-day bills – at respective stop rates of 2.50% (previously 2.50%), 3.50% (previously 3.50%), and 8.20% (previously 8.67%).
“We expect the yield on T-bills to inch higher in the coming week, given the expected tight liquidity picture”, analysts said.
The financial system liquidity came under pressure due to weak inflow. The overnight lending rate then contracted 21 percentage points this week to 7.8%, as inflows undercut the level of outflow.
A total sum of N53.28 billion flows into the financial system from FGN bond coupon payments, supported by N16.84 billion from open market operations OMO maturities.
However, this was outweighed by funding pressures for net Nigerian Treasury Bills issuances worth N49.05 billion and CBN’s weekly FX auctions.
“We expect tighter liquidity in the system in the coming week, as funding for CBN’s weekly auctions is likely to outweigh expected inflows worth N5 billion from OMO maturities”, Cordros analysts said.
Meanwhile, trading activities in the Treasury bills secondary market sustained its bullish run for the third consecutive week, following improved system liquidity, and market participants piling to the secondary market to fill the unmet demand from Wednesday’s Treasury bill auction.
Consequently, the average yield across all instruments contracted by 39 basis points to 7.6%. Across the market segments, the average yield at the OMO segment expanded by 12 basis points to 8.7%.
In the market report, Cordros said proceedings in the bonds secondary market also closed the week on a bullish note, despite relatively lower demand as investors continued to cherry-pick instruments at the mid and long segments of the curve.
Thus, the average yield pared by 2 basis points to 12.1%.
It noted that across the benchmark curve, the average yield declined at the short (-15bps) and long (-4bps) ends as investors’ interest in these segments piqued on the APR-2023 (-78bps) and JUL-2045 (-67bps) bonds, respectively.
Also, the average yield expanded at the mid-segment (+9bps) following upward repricing of the FEB-2028 (+18bps).
“In the coming week, we maintain our expectations of lower average yields in the medium term as investors are likely to maintain the strategy of playing at the short to medium segments of the yield curve with careful selective positioning on long-dated instruments”, analysts said.
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Treasury Yield Falls as Market Reacts to Lower Spot Rates
