Cordros Analysts See Yields on T-Bills Rising as Investors Selloff Positions
Investment analysts say yields on Nigeria Treasury bills will inch higher this week as the fixed income market exhibits a quiet outturn on the expectation of investors’ sizeable selloffs while positioning to satisfy funding requirements.
Overall, fixed income space exhibited quiet trading outing in the past weeks as investors scrambled for a higher return on funds as the headline inflation rate declined for the second months after 19 months upward trend.
As of Friday, the Treasury bills secondary market performance traded on a bearish note due to the fact that market participants remained on the sidelines anticipating renewed supply from the mid-week auctions amid tight system liquidity.
Liquidity in the financial system has been pressured following a persistent disequilibrium position between demand and lower inflow, which put pressure on interbank rates.
Analysts at Cordros Capital said the overnight rate contracted by 368 basis points this week compared with the previous week to 19.3% as N46 billion inflows from open market operations (OMO) maturities saturated the system.
This limit the impact of outflows for Nigerian Treasury Bill net issuance of N15.74 billion and CBN’s weekly OMO valued at 17.30 billion and foreign exchange (FX) auctions.
“We expect liquidity to remain tight in the coming week as expected N15 billion inflows from OMO maturities may not be sufficient to offset the outflows from the system. Thus, we expect the overnight rate to trend higher”, Cordros projected.
Consequent to financial system liquidity squeeze, average yields across all instruments expanded slightly by 1bp to 8.2%.
Across the market segments, the average yield at the OMO segment inched higher by 2 basis points to 9.7% and similarly expanded by 14 basis points to 6.5% at the Treasury bill segment.
On Wednesday’s Nigerian Treasury Bill primary market auction, the CBN offered bills worth N14.84 billion with allotments of N1.61 billion of the 91-Day, N1.10 billion of the 182-Day and N27.87 billion of the 364-Day.
Analysts said their respective stop rates was 2.50% (previously 2.50%), 3.50% (previously 3.50%), and 9.40% (previously 9.64%).
Also, the CBN sold N17.30 billion worth of bills to market participants at this week’s OMO auction and maintained stop rates across the three tenors, as with previous auctions.
Commenting on the pattern, Cordros analysts said, “We expect yields to trend higher in the coming week as local investors’ sell-off positions to meet funding requirements amid the tight liquidity management posture of the CBN”.
Bonds
In the bond space, the Treasury bonds secondary market turned bullish as the average yield declined by 27 basis points to 12.0%.
“We attribute the drop to improved demand following the improving macroeconomic conditions as signaled by the second consecutive month of decline in inflation.
“…reduced stop rates at the NTB auction albeit marginal, and activities of short sellers rotating into long-dated bonds in anticipation of next week’s auction”, Cordros Capital stated.
Across the curve, the investment firm noted that average yield at the mid (fell 37 basis points) and long (dropped 45bps) segments as investors took positions in the JUL-2030 (-64bps) and JUL-2034 (-75bps) bonds, respectively.
In contrast, investors continued to upwardly re-price short dated instruments gained 13 basis points, with major sell-offs recorded on the APR-2023 (+28bps) bond.
“Next week, we expect the outcome of the bond auction to influence the direction of yields in the bonds secondary market”, analysts projected.
At the auction, the Debt Management Office will be offering instruments worth about N150.00 billion through re-openings of the 16.2884% FGN MAR 2027, 12.50% FGN MAR 2035 and 12.98% FGN MAR 2050 bonds.
Foreign exchange
Nigeria’s external reserves sustained its decline, dipping USD182.93 million week on week to USD33.82 billion – the lowest since October 2017, according to Codros Capital.
Meanwhile, the naira depreciated by 0.1% to N411.00/USD at the Investors and Exporters window (IEW) but appreciated by 0.8% to N498.00/USD at the parallel market.
At the IEW, total turnover decreased by 22.3% this week to USD490.88 million while analysts said trades were consummated within the N400.00 – 412.00/USD band.
In the forwards market, Cordros Capital said rate appreciated across the 1-month (+0.4% to N411.73/USD), 3-month (+0.9% to N415.68/USD), 6-month (+2.0% to N419.95/USD) and 1-year (+4.2% to N428.65/USD) contracts.
“We expect improved liquidity in the IEW over the medium term”, the investment firm said,
It hinged this expectation on increased oil inflows in line with the rise in crude oil prices, and inflows from foreign currency borrowings. Accordingly, analysts said they expect the naira to remain relatively range-bound between N410.00/USD – N415.00/USD at the IEW.
Cordros Analysts See Yields on T-Bills Rising as Investors Selloff Positions
