Sell-offs Push Average Yield to 3.5%, as market expects N495bn inflow

Afrinvest, a leading investment banking firm has said sell offs pushed average yield up to 3.5% last week, as N495 billion inflow is expected into the system this week.

The cash injection is due from the Central Bank of Nigeria’s matured Open Market Operations Bills.

In its note, the firm relates that the performance in the Nigerian Treasury Bills (NT-Bills) secondary market last week was largely mixed.

Analysts at Afrinvest observed there was mild buying interests on the short end of the yield curve while the mid tenor instruments witnessed slight sell offs.

The firm stated that although system liquidity remained positive following the Federation Accounts Allocation Committee (FAAC) disbursement of about N311.0 billion on Tuesday, but trading activities were relatively quiet.

The leading investment banking firm reckoned that investors traded cautiously ahead of the Monetary Policy Committee (MPC) meeting of the CBN.

Consequently, average yield across all tenors marginally expanded by 8 basis points (bps) last week against the previous to settle at 3.5% on Friday.

“Major sell-offs were recorded on the 16-Apr-20 (+112bps), 30-Apr-20 (+97bps) and 11-Jun-20 (+51bps) maturities”, analysts stated.

Yield graph

The firm recalled that at the first MPC meeting of the CBN this year, the Committee surprisingly voted to raise the Cash Reserve ratio (CRR) by 500 bps to 27.5%.

MPC however holds the Monetary Policy Rate constant at 13.5% and the Liquidity Ratio at 30.0%.

“This is the first change in the CRR since March 2016 as the Apex bank aims to restrain system liquidity and curb inflationary pressures”, analysts observed.

Afrinvest how said going into this week, The CBN is expected to rollover a total of N229.6 billion worth of maturing NT-Bills at the Primary Market Auction (PMA) on Wednesday.

System liquidity is expected to be boosted by an additional inflow of N495.0 billion from OMO maturities.

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“We expect to see increased activities in the secondary market”, Afrinvest analysts held.

Analysts stressed that depending on how the CBN aims to implement the CRR increase in the short term, they expect the policy to alter the demand witnessed over the previous weeks as about N834.0 billion worth of liquidity is likely to be sterilized from the financial system.

“Investors are thus advised to trade cautiously while taking advantage of opportunities at the PMA and relatively attractive offers in close alternatives such as short-term FGN bonds (with TTM of 2-3 years) as we anticipate an initial knee-jerk reaction to the CBN’s new policy on CRR”, Afrinvest said.

Sell-offs Push Average Yield By Julius Alagbe