Nigeria’s Bond, Treasury Bills Mixed as Liquidity Improves

Nigeria’s Bond, Treasury Bills Mixed as Liquidity Improves

Yields on Nigeria’s bond and Treasury bills instruments mixed across tenors as liquidity in the financial system improved, according to a slew of fixed income market analysts. In the secondary market, trading activities closed on a mixed note, albeit with a bearish bias, as the average yield increased slightly by a basis point to 14.4%.

The market price of a long-dated FGN 30-year bond declined following buying pressures that forced its yield lower to 14.72% from 14.95%, according to fixed income traders. Investors increased their positions after data show that Nigeria’s economy expanded in the third quarter, though growth slowdown.

The 10-year, 16.29% FGN MAR 2027 Bond and the 20-year, 16.25% FGN APR 2025 bond lost N0.02 and N0.38, respectively as investors turn bullish in the debt capital market.  Traders said the average yields on 10-Year and 20-Year bonds fell to 14.58% from 14.59% and 16.02% from 15.96%.

However, the 15-year, 12.50% FGN MAR 2035 instrument, and the 30-year, 12.98% FGN MAR 2050 instrument lost N0.02 and N0.38, respectively, according to a note from Cowry Asset Management.

In reaction to the sell pressures, their corresponding yields fell to 14.75% (from 14.80%) and 14.72% (from 14.95%). Traders at Cordros Capital said in a market note that market performance was influenced by investors re-pricing bonds upwards in reaction to the 100 basis points hike in the monetary policy rate.

There was strong buying interest on the FGN NOV 2029 bond specifically from banks and institutional investors, Cordros analysts noted.

Across the benchmark curve, the average yield increased at the short (+5bps), and long (+6bps) ends, as investors took profit off the APR-2023 (+99bps) and JAN-2042 (+9bps) bonds, respectively. READ: Naira Improves as Gross External Reserve Rises

Conversely, the average yield contracted at the mid (-8bps) segment following bargain hunting on the NOV-2029 (-13bps) bond. In the money market, short-term rates declined in the absence of funding pressures in the financial system, as cash from maturing instruments flooded the space.

The financial system liquidity improved, closing higher at a net long position of N24.11 billion as against a net short position of N16.01 billion in the previous week, according to analysts’ notes.

The overnight lending rate dipped by 388 basis points to 12.6%. Traders said the rate started the week pressured, following debits for Nigerian Treasury bills and FX auctions at the top of the week.

Inflows from FAAC allocation totalled N442.83 billion and OMO maturities worth N40.00 billion were enough to saturate the market and drive down the rates, according to analysts. The Treasury bills secondary market had a quiet run this week, as the market was relatively quiet amid a switch in focus to Wednesday’s primary market auction.

As a result, the average yield across all instruments grew marginally by 4 basis points to 10.6%. Across the market segments, the average yield expanded at the NTB segments by 5bps to 10.7%. At the auction, the CBN offered N213.43 billion split as N32.28 billion of the 91-day, N41.25 billion of the 182-day, and N139.90 billion of the 364-day – in bills.

Traders said demand was lower at a total subscription level of N360.25 billion as against N520.92 billion in the previous auction. Cordros Capital noted that demand was more on the longer-dated bills which came at N345.23 billion translating to 95.8% of the total subscription.

Eventually, the CBN allotted precisely what was offered at respective stop rates of 6.50% (unchanged), 8.05% (unchanged), and 14.84% (previously: 13.99%). “With system liquidity expected to be tight in the new week, we anticipate an increase in T-bills yields from current levels”, Cordros Capital projected.

MarketForces Africa reported that  CBN issued a total of N21 billion at the OMO auction to partly drain system liquidity arising from matured OMO bills worth N40 billion. In the secondary market, the OMO yield printed at 10.2%.

Given the net inflows worth N19 billion plus liquidity boost from FAAC allocation (N736.78 billion), the Nigerian Interbank rate nosedived for all tenor buckets. # Nigeria’s Bond, Treasury Bills Mixed as Liquidity Improves

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