T-Bills Yield to Rise on Expected Liquidity Pressures
The average yield on the Nigerian Treasury bills is expected to see a moderate increase this week as analysts projected that banks would sell down their holdings to meet funding requirements.
According to analysts’ explanation, in treasury bills, investors looking to keep funds in the space would likely see higher yield because of the expectation that financial system liquidity will.
Key drivers of lower yield in the fixed income market have been the central bank low-interest rate drive, and higher subscription records at various auctions despite a double-digit high headline inflation rate.
Yields across various fixed interest securities have been plummet in the absence of possible catalysts that could push benchmark interest rates higher. But the market record indicates the first half-year witnessed a better yield outturn due to higher demand for debt instruments.
Last week, activity in the Treasury bills secondary market was bullish as market participants looked to the secondary market to fill unmet demand from Wednesday’s Nigerian Treasury bills auction, according to analysts note.
Treasury market recorded 35 basis points, 20 basis points and 1 basis point at the short, mid, and the long ends of the curve, respectively. Consequently, the average yield on Treasury instruments was down by 26 basis points to close at 4.85%.
“We expect yields to trend higher in the coming week as banks sell-off positions to meet funding requirements amid the anticipated liquidity squeeze”, Cordros Capital said in a note.
Bondholders played ostrich last week in the debt capital market with low volume instruments transacted. Recalled that at the primary market auction, the Debt Management Office (DMO) offered N118.7 billion and sold N215.7 billion.
According to various analysts’ notes, total subscriptions came in at N415.45 billion, with a subscription rate of 3.5x, while the average stop rate closed at 3.96%.
In the short term, Cordros hinted about its expectation that bonds yields will oscillate around current levels, driven by thin maturities and deliberate efforts by the DMO to reduce domestic borrowing costs for the government.
Analysts at the investment firm are also expecting non-bank liquidity to be geared towards relatively higher non-sovereign instruments, thus tempering demand.
Supporting the assertion, in its market note, analysts at FSDH Capital said the secondary bond market is likely to remain subdued in the short term this week.
Elsewhere, the average yield in the open market operation (OMO bills) expanded slightly by 2 basis points to 5.5%. Average yields across short-term, medium-term, and long-term maturities remained unchanged at 5.36 per cent, 5.54 per cent, and 6.15 per cent, respectively.
At the bi-weekly Treasury bills primary market auction, there was heavy demand for the instruments with an oversubscription level of 3.5x, N118.73 billion was the worth of bills offered.
The auction closed with the CBN allotting N2.04 billion of the 91-Day, N3.78 billion of the 182-Day and it allotted N209.90 billion for 364-Day which was above N111.07 billion that was offered.
Auction result shows that stop rates on 91-day and 182-day printed at 2.50%, 3.50% – same as the previous auction. However, the spot rate on 364-day declined to 5.89% from 6.50%.
Also, the CBN sold N25.00 billion worth of bills to market participants at the OMO auction and maintained stop rates across the three tenors, as with previous auctions. #T-Bills Yield to Rise on Expected Liquidity Pressures
Read Also: Nigerian Treasury Bills Market Records Strong Demand
