Treasury Return Softens as Demand for OMO Bills Rises
Average yields on Nigerian Treasury Bills falls as investors scramble for catalysts to push rates upward but the apex bank has maintained a distance from the Open Market Operation (OMO), thus limited options.
As of Friday, the average yield on Treasury bills secondary market printed at 4.7% after shedding 95 basis points from as much more than 7% in the second half of 2021.
Amidst disinflation, yields on fixed instruments started to drop in the latter part of the second quarter and moved heavily in the third quarter after the policy authority keeps the benchmark interest rate.
In the money market, interbank rates decline due to robust financial system liquidity. The overnight lending rate fell 325 basis points week on week to 17.3% due to a healthy liquidity position.
Cordros Capital said in an email to clients that trading in the Treasury bills secondary market closed on a bullish note following increased demand for OMO bills,
Analysts linked the heavy demand to limited supply from the Central Bank as well as market participants move seeking to fill lost bids from Wednesday’s treasury primary market auction.
Consequently, the average yield across all instruments tapered by 54 basis points to 6.2% while the average yield at the Open Market Operations (OMO) segment contracted by 12 basis points to 7.7%.
“We highlight that there has been no primary market offering in the segment for four consecutive weeks. Similarly, the average yield at the Nigerian Treasury Bills segment contracted by 95 basis points to 4.7%”.
At the primary market auction on Wednesday, the CBN offered bills worth N51.49 billion across the three conventional maturities. Analysts said demand came strong as the market witnessed heavily oversubscribed bills. Market data shows that subscription level printed at N398.38 billion, a Bid-to-offer ratio of 7.7x compared with 2.1x the previous week.
Eventually, the CBN allotted N156.33 billion in total. A total sum of N4.80 billion was allotted to 91-day bills, N3.75 billion for 182-day bills and N147.78 billion to 364-day bills.
Meanwhile, the auction was tightened, without opportunity cost for steep inflation as stop rates came flattish on 91-day and 182-day bills closed at 2.50%, 3.50% while 364-days slowed down to 7.35% from 8.20%.
“We envisage the trend of lower yields on T-bills will persist in the coming week. We maintain our view of improved buying activities as participants react to the lower rate on the recently (re)issued bills and the CBN’s continued absence from the OMO primary market”, Cordros stated.
Similarly, analysts see persistent bullish sentiments in the Treasury bonds secondary market following improved demand, as investors anticipate lower stop rates at next week’s auction.
Specifically, the average yield was stripped by 38 basis points to 11.6%. Across the benchmark curve, the average yield declined at the short (-62bps), mid (-24bps) and long (-33bps) ends as investors’ interests piqued on the JAN-2022 (-156bps), FEB-2028 (-46bps) and MAR-2035 (-55bps) bonds, respectively.
Analysts said they expect the outcome of the bond auction and release of the July 2021 consumers price index predicted by Cordros Capital at 17.54% to shape market sentiments and the direction of yields.
At the auction, the Debt Management Office (DMO) will be offering instruments worth about N150.00 billion through re-openings of the 13.98% FGN FEB 2028, 12.40% FGN MAR 2036 and 12.98% FGN MAR 2050 bonds.
For the rest of the year, Cordros Capital analysts maintain a view of lower yields on expectations of limited supply and deliberate efforts by the DMO to reduce domestic borrowing costs for the government.
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Treasury Returns Soften as Demand for OMO Bills Increase
