Analysts See Yields Rising as CBN Sells T-Bills at 12%
A relatively weak liquidity position in the financial system will force market participants to sell their short-dated instruments this week, and trigger an uptick in yields, analysts have projected.
Also, the Central Bank of Nigeria’s (CBN) strong hawkish tone is expected to act as a fresh catalyst for yield repricing and fixed income investors have started demanding higher returns on naira assets.
Traders told MarketForces Africa that short-dated assets would be the target for raising cash as investors seek to rebalance their portfolios by investing in instruments that offer a higher return.
Some local banks, due to the need to maintain their liquidity requirements, sold their position to raise cash with the option to borrow from CBN standing lending portfolios.
With double-digit inflation in Nigeria, investing in naira assets have been largely unimpressive but things could change as the apex bank inflation fighting takes a new turn.
In three consecutive policy meetings by the CBN committee, the benchmark interest rate has been adjusted by 400 basis points, from 11.5% to 15.50% amidst uncertainties in the macroeconomic conditions.
Recall that the apex bank had maintained a dovish stance on policy rates for over two years as part of an effort to drive home growth via lending to the real sector of the economy.
Analysts see yields on treasury instruments climbing this week over weak liquidity in the financial system. Last week, there was buying interest in the secondary market for the Nigerian Treasury bills after the Central Bank auction.
The bullish race was backed by market participants’ approach to filling lost bids from the primary market auction conducted by the CBN, across short and mid-tenored.
At the auction, the CBN sold Treasury bills worth N141.34 billion across 91-day, 182-day and 364-day bills despite the absence of maturing instruments in the secondary market. READ: CBN Sells N50 Bln OMO Bills at 7%, 8.5% and 10.10%
Detailed auction results showed that the CBN offered N12.28 billion for the 91-day, N20.35 billion for the 182-day, and N108.71 billion for the 364-day – bills. It allotted N179.32 billion split as N2.16 billion for the 91-day, N3.34 billion for the 182-day and N173.81 billion for the 364-day bills.
The auction result posted showed that the stop rate for the 364- day bills rose to 12.00% from 9.75% despite investors’ strong appetite. Similarly, the stop rate for 91-day bills and 182-day bills rose to 6.49% from 5.50% and 7.50% from 6.00%.
The bullish run in the secondary market dragged the curve from inching upward as the average yield across all instruments dipped by 17 basis points to 7.8%.
Across the market segments, Cordros Capital analysts said the average yield contracted by 28 basis points to 7.1% in the Treasury segment but increased by 88 basis points to 10.3% in the OMO bills secondary market.
In its market note, Cowry Asset said activities in the money market were largely quiet as they were neither refinancing nor maturing bills, thereby lowering financial system liquidity and driving the Nigerian interbank offered rate (NIBOR) higher across the board.
Analysts said overnight funds’, 1 month and 6-month tenor buckets increased to 16.24% from 16.07%, 12.12% from 9.77%, and 13.05% from 9.77%, respectively – an indication of worsening liquidity in the banking institutions.
However, the 6-month tenor bucket remained unchanged at 12.81%.
“We anticipate bearish money market action as financial sector liquidity may come under increased strain due to the limited maturing treasury and OMO bills”, Cowry Asset Management projected.
“With system liquidity expected to be tight in the coming week, we anticipate a further increase in the average yields on T-bills from current levels”, Cordros Capital said in its market note. # Analysts See Yields Rising as CBN Sells T-Bills at 12%
