Treasury, Bonds, OMO Bills Lose Allure as Returns Crash
The fixed interest securities investors have switched to hibernation mode as yields on debt capital market instruments nosedived steeply this week following price down in spot rates at the primary market auction conducted by the monetary authority.
Amidst a relatively high headline inflation rate in the country, investors’ real return on investment has stayed negative amidst heavy participation in the primary market auctions conducted by the Nigerian authority.
Headline inflation rate ended at 15.60 per cent in January, after shedding three basis points from 15.63% in December 2021.
In the secondary market for trading the Nigerian Treasury Bills, transactions conducted in the market ended on Thursday with the average yield across the curve decreasing by 19 bps at 3.75 per cent from 3.94 per cent on the previous day.
Traders at FSDH Capital said in a market note on Treasury bills that the average yield across the long-term maturities declined by 42 basis points.
However, the average yields across short-term and medium-term maturities closed flat at 3.03 per cent and 3.42 per cent, respectively. Nigerian Treasury bills 26-Jan-23 (-74 bps) maturity bill witnessed maximum buying interest as investors seek to close the demand gap created by the CBN auction.
Investable cash in the system is strong but few options available where investors can maximise return due to a low-interest rate environment engineered by the apex bank after it banned non-banks and other individuals from participation in the OMO market in Sept 2019.
In the money market, there were pressures on the financial system liquidity as short term rates inched higher. The average interbank rate rose due to an increase in open buy-back and overnight lending rates.
Market data shows that the overnight lending rate increased by 3.67 per cent to close at 13.17 per cent as against the last close of 9.50 per cent. Moving in a similar direction, the Open Repo rate was jerked up by 3.67 per cent to close at 12.67 per cent compared to 9.00 per cent on the previous day.
Midweek, the CBN held its scheduled Primary Market Auction, selling Nigerian Treasury Bills worth ₦258.00 billion across the 91-day (₦5.36 billion), 182-day (₦11.03 billion), and 364-day (₦241.61 billion) tenors.
There was however price down at the auction that witnessed a heavy demand at the time when the Debt Management Office (DMO) has out borrowed its first three months plan range of N480 billion.
At the CBN auction, the stop rates for the 91-day and 364-day tenor cleared lower at 2.24 per cent (-24 bps) and 4.35 per cent (-85 bps), respectively. However, the stop rate for the 182-day remained unchanged at 3.30 per cent, according to the CBN auction result posted on its website.
The auction was oversubscribed by 423 per cent, said FSDH Capital Limited in a market report with bid-to-cover ratios settling at 6.49x (91-day), 0.64x (182-day), and 6.36x (364-day).
In the OMO bills market, the average yield across the curve decreased by 52 basis points to close at 3.92 per cent as against the last close of 4.44 per cent, major fixed income market traders said in their reports.
Average yield across the long-term maturities declined by 52 basis points. OMO 16-Aug-22 (-104 bps) maturity bill witnessed heavy buying interest. Read: NNPC Plans to Crash Price of Cooking Gas
Trading activities on FGN bonds in the secondary market ended with the average bond yield across the curve cleared lower by 1 basis point to close at 10.97 per cent from 10.98 per cent on the previous day.
The average yields across short tenor and long tenor of the curve declined by 1 basis point and 9 basis points, respectively. However, the average yield across the medium tenor of the curve expanded by 11 basis points
FSDH said the 18-APR-2037 maturity bond was the best performer with a decrease in the yield of 53 basis points, while the 26-APR-2029 maturity bond was the worst performer with an increase in the yield of 53 basis points.
Traders projected that the secondary bond market is likely to remain subdued in the short term. #Treasury, Bonds, OMO Bills Lose Allure as Returns Crash
