Nigerian Treasury Bills Yields Shrink over Buying Momentum
The average yield on Nigerian Treasury bills tracked lower in the secondary market due to increased demand for naira assets despite negative interest yield. There has been a shift of attention away from the equities market to the fixed income space due to elevated yields.
The market dynamic has once again changed as a result of the Central Bank of Nigeria’s (CBN) tightening of monetary policy, which included a 7.5% interest rate increase in less than five months. This development has started to show in the pricing of bills at the CBN’s midweek auction sales.
Investment funds continue to suffer from inflation. Despite this, the local debt capital market is still attracting players since some investors have pointed out that maintaining funds in non-interest bearing accounts is expensive.
Traders notes state that following the midweek auction, the average yield on Nigerian Treasury bills dropped 19 basis points to 20.72% in the secondary market. Cowry Asset Management Limited informed investors in its market update that there was a strong buy sentiment regarding the AUG-2024 instrument, despite the yield decreasing by 254 bps.
In an email to investors, Cordros Capital Limited provided additional explanation, stating that the average yield decreased at the short (-43bps), mid (-1bp), and long (-2bps) segments of the curve.
The contraction was attributed by analysts covering the fixed income market to buying interest in bills with maturities of 91 days (-254bps), 182 days (whose yield decreased by 1bp), and 336 days (whose yield increased by 2bps).
Similarly, the average yield declined by 5bps to 20.9% in the OMO bills segment in the secondary market. The short-term benchmark interest rate in the money market increased as a result of liquidity constraints following the withdrawal of funds for the Nigerian Treasury bills auction.
The overnight lending rate expanded by 169 basis points to 32.3% as N130 billion debited against the system for Treasury bills auctioned to market participants caused liquidity level to drop sharply. Data from FMDQ Securities Exchange showed that the Open Repo Rate (OPR) and Overnight Lending Rate (OVN) increased, closing at 31.72% and 32.34%.
Meanwhile, the FGN bond secondary market traded quietly, as the average yield was unchanged at 18.6%. Traders said across the benchmark curve, the average yield expanded at the short (+1bp) end as market participants sold off the MAR-2025 (+2bps) bond but remained unchanged at the mid and long segments. #Nigerian Treasury Bills Yields Shrink over Buying Momentum Interest Rate on Nigerian Treasury Bill Spikes to 21.45%
