Treasury Fetches Lower Yield after 18 Basis Points Drop
Treasury bill yield sees 18 basis points decline to 5.5 per cent on Thursday as investors continue short duration play while analysts projected tightening in financial system liquidity in the second half of 2021.
The trend forming appears similar to what happened in the first half of 2021, some analysts told MarketForces Africa after noting declining average yield.
Headline inflation pressure slows down for three consecutive months before it printed at 17.75 per cent in June 2021. Consensus analysts’ forecasts indicate that inflation worries would moderate further in July due to the low base effect.
The Central Bank had taken advantage of the disinflationary trend to keep policy rates in July meeting amidst investors scathing for higher return in the space.
In what some analysts call the most subtle financial repression in the investment space, the Nigerian government has been borrowing at a rate below the headline inflation rate in the country.
However, Sonnie Ayere, Chief Executive at Dunn Loren Merrifield Limited told MarketForces Africa in a conversation that fixed-rate instruments are not meant to cover inflation as investors risk is quite minimal.
CardinalStone Partner said in a report that universal expectation of material yield correction in the first half sparked increased short-selling in Nigeria’s fixed income space.
In the second half of 2021, the fixed income market has stayed cold and quiet amidst pressure on the financial system liquidity.
Today, the overnight lending rate tapered 350 basis points to 5.5 per cent amid outflows for Central Bank weekly open market auction (OMO) auctions.
In its outlook for the second half, CardinalStone expects system liquidity to remain tight with expected open market operation maturities of N1.2 trillion.
This is 61.6per cent lower than the amount recorded in the first half. Analysts expect bond maturity at a low N561 billion for the rest of the year.
In its market report today, Cordros analysts see trading in the Nigerian Treasury bill secondary market ended on a bullish note, similar to yesterday’s pattern.
In the space, the average yield tumbles by 18 basis points to 5.5 per cent.
Across the benchmark curve, the average yield was flat at the short end but contracted at the mid (-12bps) and long (-29bps) segments.
The mixed adjustment in the space was due to demand for the 175 day to maturity which sheds 20 basis points and 208 day to maturity bills plunged 48bps respectively.
Similarly, the average yield at the OMO segment contracted by 5bps to 8.0per cent.
The Treasury bond secondary market was also bullish as the average yield on the instruments contracted by 5 basis points to 11.9 per cent.
Across the benchmark curve, the average yield contracted at the short (-7bps), mid (-3bps) and long (-5bps) segments due to demand for the JAN-2022 (-18bps), MAR-2027 (-15bps) and MAR-2036 (-18bps) bonds respectively.
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Treasury Fetches Lower Yield after 18 Basis Points Drop
