Nigerian T-Bills Yield, Spot Rates Tumble over Excess Demand
The average yield on Nigerian Treasury bills continues to decline in the secondary market due to sustained demand while spot rates on the new issuance also fell rapidly at the primary market auction conducted by the Central Bank of Nigeria (CBN).
The market has continued to record excess demand for government instruments in the local debt capital market, keeping the yield curve lower while the monetary authority leverages higher subscription levels to negotiate lower rates on bills.
However, on account of expected liquidity strain, market analysts have projected an increase in Nigerian Treasury bill yield in the new week. In the secondary market, bullish sentiments persisted in the Nigerian Treasury bills secondary market, as the average yield across all instruments contracted further, tracking 2% despite a much higher inflation rate in Nigeria.
This week, the National Bureau of Statistics is expected to release its first inflation figure for January 2023 following a slowdown reported in December 2022 which saw the consumer price index print 21.34%, a 13 basis points decline from 21.47% in November.
At the Primary Market Auction (PMA) conducted last week, the Central Bank of Nigeria (CBN) offered treasury instruments worth ₦217.1 billion across the 91-day bills (₦4.5bn), 182-day bills (₦1.3bn) and 364-day bills (₦211.2bn).
Market analysts said there was a healthy demand with a total subscription of N1.06 trillion albeit weaker than the prior auction, as the bid-to-cover ratio fell to 2.5x against 4.7x previously.
Last week, long-dated bills generally attracted more than 97% of the demand seen at the CBN auction, valued at N1.03 trillion. Across tenors, the 182-day bill recorded the strongest buying interest with a bid-to-cover ratio of 11.4x while the 91-day and 364-day T-bills were oversubscribed by 2.2x and 2.5x respectively.
Specifically, stop rates for the 364-day bills fell further to 2.24% (from 4.78%). Also, 91-day bill and 182-day bill rates fell to 0.10% (from 0.29%) and 0.30% (from 1.80%), respectively.
In a market note, analysts at Cordros Capital attribute yield performance in the secondary market to higher demand as investors looked to cover for lost bids at the CBN treasury auction on Wednesday.
Across the market segments, the average yield contracted by 68 basis points and 10 basis points to 1.3% and 1.5% in the open market operations (OMO bills) and NTB secondary markets, respectively.
Eventually, the CBN allotted bills worth N417.06 billion, split as N4.52 billion for the 91-day, N1.31 billion for the 182-day, and N411.23 billion for the 364-day bills.
“Given the expected tight liquidity in the system next week, we anticipate increased T-bills yields from current levels”, Cordros Capital said. This week, system liquidity tapered as sales of T-bills worth ₦417.1 billion offset inflows of ₦225.6 billion from maturing bills (of which OMO bills: ₦38.5 billion).
Consequently, the average daily system liquidity fell 54.9% week on week to ₦373.5 billion while interbank rates diverged with the open repo rate down 13 basis points to 10.8% and the overnight lending rate jumped up 6 basis points to 11.1%.
In the new week, the secondary market yield is anticipated to advance, supported by weak liquidity conditions in the absence of maturing T-bills and FGN Bond coupons, Afrinvest said. #Nigerian T-Bills Yield, Spot Rates Tumble over Excess Demand
