T-Bills Yield Tumbles as Banks Seek to Reinvest OMO Inflows
Average yield tumbles as trading activities in the Nigerian Treasury bills secondary market ends bullish after some local banks seek to reinvest inflows from matured open market operations (OMO).
The inflows boosted the financial system liquidity with short term rates declining amidst expected monetary policy rate adjustment as the Central Bank of Nigeria prepares for the final meeting in the year on November 22 -23, 2021.
The overnight lending rate contracted by 613 basis points week on week to 12.4 per cent, according to data from the FMDQ Exchange platform following heavy inflows from Federation Account Allocation Committee disbursements valued at N438.64 billion.
A relatively robust financial system supported by inflows offset the outflows from CBN’s weekly open market operations worth N25.00 billion and FX auctions.
“We expect the overnight lending rate to expand next week, following anticipated funding pressures for CBN’s (NTB, OMO and FX) auctions which are likely to outweigh the minimal expected N4.30 billion inflow from OMO maturities”, analysts at Cordros Capital projected.
In the Treasury market, a bullish performance surfaced following sustained demand in reaction to the Nigerian Treasury Bills stop rate moderation at the primary market auction.
The bullish trend was also supported by activities of some local banks that sought to reinvest funds from the Central Bank open market operations maturities earlier in the week.
Alpha Morgan Capital note stated that Treasury bills secondary market traded somewhat mixed over the week but with a bullish bias. Analysts report showed a slight climb of 1 basis point at the short end of the curve while the mid and long ends of the curve declined by 23 and 13 basis points respectively.
Consequently, the average yield on T-bills slowed down by 15 basis points to close at 5.33 per cent. Analysts added that across the market segments, the average yield at the open market operations segment contracted by 28 basis points to 6.1 per cent.
In the coming week, analysts at Cordros Capital are expecting the outcome of the T-bills auction to shape the direction of yields in the T-bills market. At the auction, the CBN will roll over NN150.82 billion worth of maturities to market participants.
In the Federal Government bonds secondary market, trading activities ended with mixed sentiments, albeit with a bearish bias.
Analysts hinted that investors traded in lower volumes following the unclear direction of foreign income yields at the primary market and continued to cherry-pick attractive instruments, especially at the long end.
Consequently, the average yield inched higher by 3 basis points to 11.30 per cent.
Meanwhile, across the benchmark curve, the average yield was unchanged at the short end but expanded at the mid (+9bps) segment as more sell pressures were witnessed on the NOV-2029 (+19bps) bond.
The average yield contracted at the long (-4bps) end following demand for the JUL-2045 (-54bps) bond. In the short term, we maintain our view of lower yields given our expectations of limited supply and deliberate efforts by the Debt Management Office to reduce domestic borrowing costs for the government, Cordros Capital said.
Elsewhere, activities at the Federal Government Eurobond market traded mixed in this week’s session. As a result, the average yield was up by 7 basis points to close at 6.64 per cent. #T-Bills Yield Tumbles as Banks Seek to Reinvest OMO Inflows
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