Rising Demand for T-Bills Drags Yield Lower to 3.8%
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Rising Demand for T-Bills Drags Yield Lower to 3.8%

Trading in the Nigeria Treasury bills or T-Bills secondary market ended the week with average yield lowering to 3.8% due to rising demand as market participants reacted to declining marginal rates at recent auctions by the apex bank.

This week, the average yield on Nigerian Treasury instruments across the curve recorded a 65 basis points decline, according to a market note from Cordros Capital Limited.

Knocking down the yield trend line, higher demand for treasury instruments inched higher in the secondary market following an unmet demand which later filtered into the secondary market, according to traders.

Recall that on Wednesday, the monetary authority held its auction where it sold Nigerian Treasury Bills worth ₦258.00 billion across the 91-day (₦5.36 billion), 182-day (₦11.03 billion), and 364-day (₦241.61 billion) tenors.

High oversubscription levels seen allowed further spot rates repression in the market. CBN Auction results showed that the stop rates for the 91-day and 364-day tenor cleared lower at 2.24 per cent (-24 bps) and 4.35 per cent (-85 bps), respectively.

However, the stop rate for the 182-day remained unchanged at 3.30 percent. The auction was oversubscribed by 423 per cent, with bid-to-cover ratios settling at 6.49x (91-day), 0.64x (182-day), and 6.36x (364-day).

Analysts told MarketForces Africa that strong demand, coupled with robust liquidity in the market will continue to impact spot pricing, and some traders see yield remaining subdued as investors seek fresh catalysts for yield repricing.

A strain in the money market hit the short term interest rate, the average interbank rate inched higher due to pressures on funding in the space. Market data shows that the overnight lending rate increased by 5.50 per cent to close at 15.00 per cent as against the last close of 9.50 per cent.

Also, Open Repo rate increased by 5.75 percent to close at 14.75 percent compared to 9.00 percent on the previous day.

Trading activities in the secondary market for Nigerian Treasury Bills secondary market closed bullish as the average yield decreased by 8 basis points to 3.75 per cent on the previous day on Friday.

Average yield across the long-term maturities declined by 18 basis points, FSDH Capital said in a market report. However, the average yield across short-term and medium-term maturities closed flat at 3.03 per cent and 3.42 per cent, respectively.

It was noted that the Nigerian Treasury Bills (NTB) 26-Jan-23 (-78 bps) maturity bill witnessed maximum buying interest as investors were unable to fulfil subscriptions at the primary market auction.

“We expect yields to trend lower further next week, as investors sustain buying activities in reaction to the moderation in the stop rate of the one-year paper at the last primary market auction”, Cordros Capital said in a market report. 

In the OMO bills market, the average yield across the curve closed flat at 3.92 per cent, traders said in their separate notes. Meanwhile, the average yield across the long-term maturities remained unchanged at 3.92 per cent. 

The CBN held an OMO auction on February on Thursday, selling bills worth ₦100.00 billion across the 96-day (₦15.00 billion), 180-day (₦15.00 billion), and 362-day (₦70.00 billion) tenors with the stop rates remaining unchanged at 7.00 per cent, 8.50 per cent, and 10.10 per cent, respectively.

The result shows that the OMO auction was oversubscribed, indicating a subscription level of 281 per cent (₦280.87 billion). FSDH Capital traders said demand was skewed towards medium tenor maturity bills with bid-to-cover ratios settling at 2.17x (96-day), 3.18x (180-day), and 2.87x (362-day).

In the second market for FGN bond market, trading activities ends on bullish noted as the average bond yield across the curve cleared lower by 1 basis point to close at 10.96 percent from 10.97 percent on the previous day.

Average yields across short tenor and long tenor of the curve declined by 1 basis point each. However, the average yield across the medium tenor of the curve remained unchanged.

The 18-JUL-2034 maturity bond was the best performer with a decrease in the yield of 8 basis points, according to FSDH Capital. Going into next week, FSDH Capital maintains that the secondary bond market is likely to remain subdued in the short term.

Projecting into next week, Cordros Capital Limited analysts said they envisage demand from investors will linger and drive yields lower.

“Nonetheless, we are maintaining our medium-term view that the FG’s significant frontloading of borrowings for the year in the first half of 2022 will result in an uptick in bond yields, as investors demand higher yields in the face of elevated supply”, analysts added. #Rising Demand for T-Bills Drags Yield Lower to 3.8%

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