Nigerian T-Bills Market Rallies as Naira, GDP Slump
In an effort to reduce Nigeria’s naira exposure to accelerating inflation rate, fund managers, and local investors flood the secondary market for Treasury bills as the local currency depreciates.
Economic data show gross domestic product growth slowdown, with increasing uncertainties ahead of the presidential election. Nigeria’s economic growth declined to 3.10% in 2022, according to the statistics office 30 basis points away from 3.40% GDP surge reported in 2021. The slowdown was driven by poor performance in the oil sector.
Today, the naira depreciated across foreign exchange markets, lower in value by 0.1% at the Investors and Exporters FX window where it traded at N461.60 to the United States dollar.
At the parallel market, the naira was sold to customers at N770 as local banks are unable to meet the demand for foreign currencies, according to traders.
In the fixed income market, higher positioning on government instruments has forced the yield curve to shift downward. The rally started late last year over a strong liquidity position in the financial system.
T-Bills yield reversed from 11% in the final quarter of 2022, falling below 2% in the first quarter of 2023, mirroring declining spot rates on Central Bank of Nigeria’s primary market auctions in the year.
A slew of market analysts is hoping to see yield repricing in the Nigerian Treasury bills s inflation rate continue to rise with an expectation that liquidity level in the market will reduce.
In the money market, the overnight lending rate contracted by 438 basis points to 12.6%, in the absence of any significant inflows into the system, Cordros Capital, a Lagos-based investment firm said in a note to investors.
Following bullish transactions in the Treasury bills secondary market on Wednesday, the average yield declined by 2 basis points to 4.1%. Across the curve, traders said the average yield contracted at the short (-4bps) end following buying interests in the 36-day to maturity (-25bps) bill.
Meanwhile, the average yield was flat at the mid and long segments. Elsewhere, the average yield was unchanged at 3.8% in the OMO segment. # Nigerian T-Bills Market Rallies as Naira, GDP Slumps