Bonds Sustain Sell Pressure as T-Bill Spot Rate Projected for 10%
Patience Oniha, DMO Chief

Bonds Sustain Sell Pressure as T-Bill Spot Rate Projected for 10%

Average yields on Government bonds rise over sustained sell pressure as fixed income traders at Chapel Hill Denham reveals expectation that spot rate on 364-day treasury will hit 10% next week.

Inflow into the financial system reduced pressures on funding rates on Friday. It was noted that liquidity squeeze eased slightly following improvement recorded in the financial system albeit remaining negative.

Analysts explained that despite the central bank (CBN’s) open market operations auction that took place on Thursday, the negative liquidity balance in the financial system reduced to N22.5 billion from N167.9 billion.

Consequently, the open buy back and overnight rate eased by 25 basis points (bps) and 50bps to 14.75% and 15.25%, respectively.

According to analysts report, by next week, N60 billion worth of open market operations bills will mature on Tuesday. This will increase inflow into the financial system, but some analysts said it may not be sufficient to reduce pressure on interbank rates.

In the fixed income market, analysts at Chapel Hill Denham stated that sentiments were broadly bearish.

The investment firm’s report stated that at the front end of the curve, the Nigerian treasury bills benchmark curve closed flat at an average of 4.35% while the open market operations curve expanded by an average of 29bps to 7.98%.

Pressure in the bond market was sustained as yields expanded on the benchmark curve by an average of 17bps to 13.23%, according to analysts.

This was attributed to selling pressures at the short (+47bps to 11.78%) and intermediate (+13bps to 13.45%) end of the curve.

Next week, Federal Government of Nigeria primary market activity is expected to resume with a rollover Nigerian treasury bills auction.

Funding Pressure Sustained as Spot Rate on T-Bills Jumps to 9%

At the auction, Chapel Hill Denham said the Federal Government will be looking to raise N117.6 billion worth of bills, split across three maturities: 91-day (N24.7bn), 182-day (N10.0bn) and 364-day (N82.8bn).

Noting the last auction cleared at 2.0%, 3.5% and 9.75% across the three tenors, respectively, analysts said odds are in favour of the 364-day stop rate printing at 10% at the upcoming auction.

In a related development, the Nigerian local currency, Naira continued to trade within a tight band at all segments of the foreign exchange market.

In the Investors and Exporters Window, the local currency appreciated against the United States dollar by 0.16% or 67 Kobo to close at N410.33.

Also, Naira strengthened against the greenback in the parallel market by 0.41% or N2.00 to 483.00. However, the exchange rate remained unchanged in the Official and Secondary Market Intervention Sale (SMIS) segments at N379.00 and N380.69 respectively.

Bonds Sustain Sell Pressure as T-Bill Spot Rate Projected for 10%