Nigerian T-Bills Yield Slumps by 2.60% as Liquidity Rises
The average yield on Nigerian Treasury bills spiral downward strongly following buying momentum in the secondary market. The yield contraction occurred as market participants the central bank midweek auction took lost bids to the secondary market for refill.
At the auction, the apex bank reduced spot rate on one year Treasury bills instrument to 20.70%, according to its auction results. Spot rate on 364-day had printed much higher at 25% as Nigerian government sought to attract foreign investors into the market.
Supporting the increase demand for treasury bills was large inflows from Federal Accounts allocation to 36 states and Federal Capital Territory, which boosted liquidity level in the financial system.
As such, the Nigerian interbank rates decreased across board for all tenor buckets, reflecting improved liquidity in the financial system. Key money market rates such as the open repo rate (OPR) and overnight lending rate (OVN) nosedived to 27.08% and 28.35%, respectively.
The market has been experiencing negative flows of funds that pushed short term benchmark interest rate higher amidst impacts of monetary policy tightening. Local deposit money banks in the country continue to borrow from the CBN standing lending facility to augment their liquidity positions.
The change in liquidity level, driven by FAAC inflows triggered rally in the Treasury bills secondary market, in addition to increase demand following lost bids at the midweek auction.
As a result, the average yield fell by 260 basis points to settle at 22.5%. In its market update, Cordros Capital Limited told investors that across the curve, the average yield declined at the short (-100bps), mid (-524bps) and long (-202bps) segments.
Traders said the yield contractions were driven by bargain hunting for the 91-day to maturity, which lost 591bps. The market also witnessed demand for 105-day to maturity, whose yield declined by 573bps. Market demand for 196-day to maturity caused its yield to drop by 432bps.
Also, the average yield contracted by 1bp to 18.8% in the OMO bills segment in the secondary market. #Nigerian T-Bills Yield Slumps by 2.60% as Liquidity Rises
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