Rates on Debt Instruments Surge as Liquidity Squeeze Persists
Rates on debt instruments inched higher in the fixed income market on Wednesday amidst financial system liquidity squeeze.
Following the recent bond auction with upward yields repricing, discount rates on Nigerian Treasury Bills (NTBs) and open market operations (OMO) also increased 20 and 30 basis points respectively.
The upward rate adjustment is coming as financial system liquidity remained broadly constrained, opened in a deficit of N123 billion from a deficit of N2.7 billion yesterday.
Consequently, interbank funding rates increased further, as the Open Buy Back and Overnight rates rose closed higher by 75 basis points (bps) and 150bps to 13.00% and 14.00% respectively.
“Money market rates are expected to remain elevated at double-digit this week”, analysts at Chapel Hill Denham said in a report.
Meanwhile, sentiments were broadly bearish at the fixed income market as the April edition of the bond Primary Market Auction (PMA) was underway.
In the bills segment, analysts said discount rates on benchmark NTBs and OMO expanded by an average of 20 bps and 31 bps to 4.09% and 6.97% respectively.
Similarly, bond yields inched higher across benchmark tenors by an average of 6bps to 12.33%, due to upward repricing of yields at the intermediate (+13bps to 12.56%) and long (+2bps to 13.54%) end of the curve.
As expected, the Debt Management Office (DMO) offered N150 billion across three maturities at the bond PMA, split evenly between the MAR 2027, MAR 2035, and JUL 2045 re-openings.
Analysts said demand was moderate at N268.7 billion, implying a bid-cover ratio of 1.8x from 2.2x previous level, as the DMO sold N158.0 billion at the auction.
The auction was split to N22.97 billion of MAR 2027, N38.78 billion of MAR 2035, and N96.20 billion of JUL 2045, as DMO allotted another N116.5 billion as non-competitive allotment (N43.50 billion of MAR 2027 and N74.00 billion of MAR 2035, bringing cumulative issuance to N274.5 billion.
Chapel Hill Denham said as expected, issuance yields expanded by an average of 181bps as all offered instruments cleared higher: MAR 2027 (+175bps to 12.25%), MAR 2035 (+184bps to 13.34%), and JUL 2045 (+185bps to 13.85).
In the foreign exchange market, the Nigerian local currency, Naira, continued to trade within a tight band at all segments of the FX market.
In the Investors and Exporters Window, Naira strengthened marginally against the United States dollar by 0.16% or 67 kobo to close at 410.00.
However, the exchange rate remained unchanged in the official and Secondary Market Intervention Sale (SMIS) segments at 379.00 and 380.69 respectively.
In the parallel market, the Naira traded flat against the US dollar at N486.00, while external reserves stood at US$35.22 billion, up 1.1% month-to-date.
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Rates on Debt Instruments Surge as Liquidity Squeeze Persists
