Market Sees Yields Diverge as Liquidity Level Drops

Market Sees Yields Diverge as Liquidity Level Drops

The fixed income market sees average yields on Nigerian treasury bills and bonds diverge amidst declined system liquidity.

In the money market, short term rates made an uptrend as financial system liquidity slowed down, thus interbank rate was lifted. Local banks with strong liquidity positions have recently requested higher rates.

At the Central Bank of Nigeria’s standing lending facility, some deposit money banks have pitched their tent or more borrowings to meet liquidity requirements.

Data from FMDQ Exchange shows that on Monday, the overnight lending rate (O/N) inched forward by 300 basis points to 12.0%, from the single-digit level seen on Friday.

Analysts at Cordros Capital attribute the increase to significant funding pressure on the system. The average yields on Treasury bills instrument rose 12 basis points to 7.8% as market participants take positions.

Fixed income market analysts at Cardinalstone partners said in a market report that it expects fund managers to selloffs their short-duration Treasury bills holding in order to reinvest in high-yield instruments.

Across the curve, market analysts said the average yield pared at the short (-1bp) end due to demand for the 73-day to maturity (-1bp) bill. It however expanded at the mid (+62bps) segment as participants sold off the 164-day to maturity (+187bps) bill. Conversely, the average yield was flat at the long end.

Elsewhere in the secondary market, the average yield contracted by marginally by a basis point to 10.8% in the open market operation (OMO bill) segment. In the Eurobond capital market, there have been selloffs on Nigerian bonds which has resulted in high yield.

A similar experience has been observed in the local bond which has sustained an uptrend after interest rate hikes. Yesterday, trading activities in the FGN bond secondary market were mixed, albeit with a bullish bias, as the average contracted by 1bp to 13.0%, according to Cordros Capital market note.

Across the benchmark curve, analysts said the average yield dipped at the short (-1bp) end following mild interest in the APR-2023 (-5bps) bond, but was flat at the mid and long segments. # Market Sees Yields Diverge as Liquidity Level Drops

READ: FGN Bonds, T-Bills Yields Mixed as Naira Crashes