Strong Demand, Healthy Liquidity Drag Yield on T-Bills Lower
Relatively strong demand for Nigerian Treasury bills drags yield lower this week as investors pump funds into the secondary market after unmet demand in the primary market midweek.
With a robust liquidity position in the financial system, subscription level at the auction was above the amount allotted by the Central Bank, resulting in a decline in the yield on 364-day bills.
Healthy liquidity in the financial system has impacted short term rates in recent times but for Central bank cash reserve ratio debits on Nigerian banks resulting in strained liquidity as financial position closed lower today.
Consequent to apex bank CRR debits, the overnight rate increased by 13.25 per cent to close at 15.25 per cent as against the last close of 2.00 per cent, and the Open Buy Back rate increased by 12.83 per cent to close at 14.50 per cent compared to 1.67 per cent on the previous day.
Money market rates increased by an average of 1304 basis points following the foreign exchange retail auction by the Central Bank, FSDH Capital said in a report.
Analysts noted that the average net liquidity position this week printed at N412.08 billion as against N97.95 billion last week.
“In the coming week, we expect tighter liquidity in the system, as outflows for the November bond PMA, CBN’s weekly auctions may outweigh the sole inflow from OMO maturities (N72.50 billion). Thus, we expect the overnight lending rate to trend northwards”, Cordros Capital analysts said.
In the secondary market, trading activities on Nigerian treasury bills ended the week on a bullish note as the healthy system liquidity, market participants’ filling unmet bids from Wednesday’s NTB PMA at the secondary market and lack of fresh supply at the open market operations (OMO bills) primary market, supported demand for T-bills.
Analysts at FSDH Capital hinted that the average yield across the curve increased by 7 basis points to close at 5.19 per cent from 5.12 per cent on the previous day.
Also, average yields across medium-term and long-term maturities expanded by 4 basis points and 12 basis points, respectively. However, the average yield across the short-term maturities was compressed by 3 basis points.
Yields on 13 days to maturity bills advanced with the 25-Aug-22 maturity bill recording the highest yield increase of 22 basis points, while yields on 4 bills remained unchanged, FSDH Capital hinted. At the CBN auction, the CBN offered N150.82 billion worth of instruments for sale to market participants.
Demand at this auction was solid, with the highest subscription level recorded at N574.88 billion, translating to a Bid-offer ratio of 3.8x compared with the previous auction of 2.9x. Eventually, the CBN allotted N196.18 billion, split into N4.12 billion of the 91-Day, N3.00 billion of the 182-Day and N189.06 billion of the 364-day bills.
Stop rates on 91-day and 181-day bills were unchanged at 2.50% and 3.50% but 364-day declined to 6.50% from 6.99%.
Cordros Capital expects 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.
In the OMO bills market, the average yield across the curve decreased by 33 basis points to close at 5.62 per cent as against the last close of 5.95 per cent.
It was noted that average yields across short-term, medium-term, and long-term maturities declined by 36 basis points, 31 basis points, and 20 basis points, respectively.
Yields on 17 days to maturity bills fell with the 23-Nov-21 maturity bill recording the highest yield decrease of 39 basis points
FGN bonds secondary market closed on a flat note today, as the average bond yield across the curve closed flat at 8.31 per cent. Average yields across short tenor, medium tenor, and long tenor of the curve remained unchanged.
The FGNSB 13-NOV-2021 bond records decrease in the yield of 9 basis points, while the FGNSB 15-MAY-2022 bond yield increase by 10 basis points.
Next week, Debt Management Office (DMO) will be offering instruments worth about N150.00 billion through re-openings of the 12.50% FGN JAN 2026, 16.2499% FGN APR 2037 and 12.98% FGN MAR 2050 bonds. Analysts at Cordros Capital revealed an expectation that the outcome of the bond auction to be conducted by DMO next week will shape market sentiments and the direction of yields.
In the short term, analysts said they expect yields to hover around current levels, given expectations of limited supply in Q4-2021 and deliberate efforts by the DMO to reduce the government’s domestic borrowing cost. #Strong Demand, Healthy Liquidity Drag Yield on T-Bills Lower
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