Investors See T-Bills Yield Repricing as 364-day Spot Rate Rises
Fixed interest rate investors see an upward repricing in Treasury bills yield as spot rate on 364-bills inched higher at the central bank primary market auction during the week. Spot rates on 91-day and 182-day bills closed steady but there was a positive reverse for 364-day bills which has seen a slowdown in the past auction due to higher subscription levels.
Investors have been trying to position at the long-dated instruments amidst instability in yield pricing but lower issuance and robust system liquidity have been a downside to yields rising. This occurred as the headline inflation rate keeps dropping since April, and analysts have projected that consumers price index would see further decline throughout the year.
Before the slowdown commenced, the headline inflation rate had jumped for consecutive months following pandemic-induced economic stress, shocks. Meanwhile, liquidity pressure impacted short term transactions rate in the money market as data from the FMDQ platform shows that open buy back and overnight lending rates increased this week.
The short term rates have been on declining due to maturing inflows from open market operations, treasury bills in recent times, keeping the funding position positive.
Due to liquidity strained, the overnight lending rate expanded by 100 basis points week on week to 14.5%, open buy back rate closed at 14%. Cordros Capital told clients in an email that funding pressures for net Nigerian Treasury bills issuances at N71.34 billion, the CBN’s weekly OMO worth N50.00 billion and FX auctions outweighed the sole N119.07 billion inflow from OMO maturities.
“We expect the overnight lending rate to remain elevated next week as debits for cash reserves ratio and CBN’s weekly auctions are likely to offset N100.67 billion inflows from FGN bond coupon payment and N38 billion OMO maturities”, Cordros Capital said.
Analysts said trading in the Treasury bills secondary market turned bearish this week following market participants’ reaction to an increased stop rate in the long-dated instrument at Wednesday’s Treasury bills auction. Consequently, the average yield expanded by 18 basis points to 5.6%.
Cordros Capital hinted in an email that across the market segments, the average yield expanded by 10 basis points and 30 basis points to 6.2% and 4.9% at the OMO and NTB segments, respectively.
At the bi-weekly primary market auction, the central bank offered bills worth NN138.17 billion and eventually allotted N209.50 billion – N4.94 billion of the 91-day, N11.88 billion of the 182-day and N192.68 billion of the 364-day bills. Stop rates on 91-day was steady at 2.50%, 182-day stayed at 3.50%, an increase was seen at a 364-day bill to 7.20% from 6.80%.
“We highlight a lower subscription level at this auction which came at N256.12 billion; translating to the bid-to-offer ratio: 1.8x compared to the previous auction valued at N394.12 billion; bid-to-offer ratio: 2.5x”, analysts added.
Considering the current uncertainty created by the higher Nigerian Treasury Bills stop rate, analysts said they expect the result of next week’s auction to provide clarity and dictate the direction of yields.
The CBN will roll over N161.79 billion worth of instruments at the next primary market auction.
Also, in the federal government bonds secondary market, there was a mixed sentiment in trading activities, albeit with a bearish bias, attributed to higher treasury bills stop rates amid investors’ less aggressive cherry-picking activities. Consequently, the average yield expanded by 5 basis points to 11.1%.
Analysts noted that across the benchmark curve, the average yield declined at the short (-3bps) and mid (-4bp) segments following demand for the APR-2023 (-54bps) and MAR-2027 (-12bps) bonds, respectively.
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However, it expanded at the long (+18bps) end as investors upwardly repriced the MAR-2036 (+48bps) bond.
“In the coming week, we expect the market direction to be determined by the outcome of the NTB auction, monetary policy committee MPC decision and August inflation result”, analysts noted.
Investors See T-Bills Yield Repricing as 364-day Spot Rate Rises
