DMO, CBN Oversubscribed Auctions Keep T-Bills, Bonds Yields Mixed
Oversubscriptions at Debt Management Office (DMO) and Central Bank (CBN) primary market auctions for Nigerian Treasury bills, and Federal Government bonds resulted in mixed results for investors.
A slew of analysts market reports shows that the average yield on Nigerian Treasury bills jumps as investors bet large at Debt Management Office primary market auction conducted last week.
The auction saw a heavy oversubscription as investable funds seek better return across the fixed income market with headline inflation reading of high double digits.
A similar scenario played out at the Central Bank mid-week treasury bills primary market auction where oversubscription resulted in a decline spot rate for 364-day bills.
At the just concluded week, the DMO offered N150.05 billion and sold N235.05 billion after recording heavy total subscriptions which came in at N427.53 billion.
With a subscription rate of 2.85x recorded, the average stop rate closed at 5.08 per cent at the auction amidst effort by Nigerian government agencies to reduce borrowing costs.
Meanwhile, activities at the Nigerian Treasury bills secondary market traded on a bearish note, following 19, 2 and 3 basis points increase at the short, mid and long ends of the curve, respectively, according to Alpha Morgan Capital market report.
Consequently, the average yield jumped up 10 basis points to close at 5.48 per cent.
Following the DMO auction result, the trading activities at the federal government bonds secondary market ended on a bullish note.
Trading activities at the market witnessed 12, 11 and 9 basis points drop at the short, mid and long ends of the curve, respectively. Consequently, the average yield was down by 10 basis points to close at 11.28 per cent.
Similarly, activities at the FG Eurobond market traded somewhat mixed in this week’s session as the average yield was up by 8bps to close at 6.57 per cent. A better financial system liquidity keeps short term rates on downward movement, according to data from the FMDQ Exchange platform.
The overnight (OVN) rate contracted by 75 basis points week on week to 18.5 per cent as inflows from FAAC disbursements, FGN bond coupon payments, open market operations maturities outweigh Cash reserve ratio debt on banks, net treasury bills issuance CBN weekly OMO and FX auctions, according to Cordros Capital.
Inflow into the financial system includes FAAC worth N438.64 billion, FGN bond coupon payments of N160.32 billion and open market operations bills (OMO) maturities totalling N93.00 billion.
These inflows outweighed funding pressures for cash reserve ratio debits on banks for failing to meet the 65% loan to deposit ratio set by the apex bank, net treasury bills issuances totalled N85.00 billion, N19.00 billion CBN Weekly OMO and FX auctions.
In the coming week, analysts at Cordros Capital expect the overnight lending rate to trend lower in the absence of significant funding pressures, amid expected N103.80 billion inflow from OMO maturities.
Across the market segments, the average yield contracted by 7 basis points to 6.4 per cent at the open market operations (OMO) segment but expanded by 10 basis points to 5.5 per cent at the NTB segment.
These occurred following the introduction of new bills to the secondary market, Cordros Capital said in a market report. At this week’s Treasury bills primary market auction, the CBN offered N150.05 billion for sale and eventually allotted N235.05 billion.
Apex bank allotment was split into N2.68 billion of the 91-day, N2.02 billion of the 182-day and N230.34 billion of the 364-day bills.
Stop rates were steady for 91 days and 182 days at 2.50 per cent and 3.50 per cent respectively. However, the spot rate is lower for the 364-day bills, from 7.25 per cent to 6.99 per cent with a subscription level of N431.12billion.
Analysts highlight that demand was strong at the auction recording a Bid-cover ratio: 1.8x.
“We expect yields to trend lower in the coming week, as investors react to the recent moderation in stop rate at the Nigerian Treasury bills primary market”, Cordros Capital projected.
Bullish sentiments returned to the Treasury Bonds secondary market as investors anticipated lower yields in the fixed income market following the outcome of the NTB auction, and cherry-picked on attractive offers as they looked to re-invest the liquidity from FGN bond coupon payments.
Across the benchmark curve, the average yield expanded at the short (+7bps) end as investors upwardly repriced the JAN-2026 (+46bps) bond but contracted at the mid (-25bps) and long (-6bps) segments following demand for the NOV-2029 (-33bps) and JUL-2034 (-18bps) bonds, respectively.
In the face of reduced supply of instruments in the fourth quarter and deliberate efforts by the DMO to reduce the government’s domestic borrowing cost, analysts maintain expectations of lower average yields in the short term. # DMO, CBN Oversubscribed Auctions Keep T-Bills, Bonds Yields Mixed
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