T-Bill Sheds 32 Basis Points as CBN Fails to Float Auction

T-Bill Sheds 32 Basis Points as CBN Fails to Float Auction

The average yield on the Nigerian Treasury bill sheds 32 basis points last week following the Central Bank of Nigeria (CBN) decision not to float auction as the financial system liquidity strains eased. Due to recorded improvement in liquidity, the overnight rate which has been on the upside declined by 10.50 percentage points week on week to 12.5%.

Cordros Capital analysts report stated that the contraction was due to improved system liquidity as inflows from Federation Accounts Allocation Committee disbursements worthy N363.86 billion outweighed outflows for Treasury bill net issuances valued at N81.87 billion at CBN’s weekly FX auctions.

But analysts have projected that they are expecting tighter liquidity in the system in the new week as funding pressures from CBN’s weekly auctions are likely to outweigh expected N30 billion inflows from OMO maturities.

T-Bill Sheds 32 Basis Points as CBN Fails to Float Auction

Though the fixed income space has been recording quiet trading outturn, the development some fixed income analysts have attributed to slow down in headline inflation rate as well as the CBN dovish stance on policy rates.

Thus, improvement in the financial system liquidity resulted in bullish trading in the Treasury bills secondary market as the average yield across all instruments declined by 5 basis points to 8.4%, according to Cordros Capital analysts. 

Across the curve, analysts said in the report that they witnessed sell-offs of open market operations (OMO) instruments as local banks exited positions following the dearth of liquidity at the start of the week.

Specifically, the average yield at the OMO segment expanded by 18 basis points to 9.9% as the CBN did not float an auction.

Elsewhere, analysts’ report showed that the average yield contracted 32 basis points to 6.6% as demand was stronger in the Nigerian Treasury Bill secondary market. Analysts spotted that the fixed income market participants took to the secondary markets to cover lost bids.

At the auction, the CBN offered N81.74 billion – N2.88 billion of the 91-day, N20.00 billion of the 182-day, and N58-86 billion of the 364-day bills, and ultimately allotted N163.61 billion.

Analysts at Cordros Capital stated in the market report that the auction stop rates were 2.50% (unchanged), 3.50% (unchanged), and 9.15% (previously 9.40%) on the 91-day, 182-day and 364-day bills, respectively.

Codros Capital analysts highlighted that the auction was oversubscribed with a subscription level of N446.01 billion, translating to a bid-to-cover ratio of 2.7x”.

“In the week ahead, we expect the yields on T-bills to inch higher, as we believe the respite to system illiquidity that ensued this week is unlikely to persist. Hence, we expect sell pressures to resurface”, the investment firm said in the report.

Similarly, the Treasury bonds secondary market still remained bullish as the average yield declined by 36 basis points to 11.6%. Analysts attributed the decline to the improved system liquidity and cherry-picking activities of investors.

Across the curve, it was noted that average yield at the short (-50bps) and mid (-35bps) and long (-33bps) segments contracted, following demand for the JAN-2026 (-80bps), MAR-2027 (-55bps) and JUL-2034 (-60bps) bonds, respectively.

“We maintain our expectation of increased demand for bonds in the near term and expect yields to continue to moderate as investors leverage the increased market supply and take positions ahead of the maturing JUL-2021 bond”.

The Nigerian external reserves tumbled again at the just concluded week, dipping US$196.31 million to US$33.32 billion at the last day in June 2021.

Despite the decline, the Nigerian local currency, naira, appreciated by 0.1% to N411.25 to a dollar at the Investors and Exporters Window (IEW) but depreciated by 0.6% to N503.00 at the parallel market.

At the IEW, Cordros Capital hinted that total turnover as of 1st July 2021 decreased by 22.7% week to date to US$537.85 million, with trades consummated within the N400.00 – 420.95/USD band.

In the forwards market, the rate depreciated 0.1% across the 1-month to N413.43, 3-month shed 0.2% to N418.11, 6-month dropped off 0.5% to N424.09 and 1-year fell 0.5% to N435.74 contracts.

“We expect improved liquidity in the IEW over the medium term, given our expectation of increased oil inflows in line with the rise in crude oil prices, and inflows from foreign currency borrowings.

“Accordingly, we expect the naira to remain relatively range-bound N410.00 – N415.00 at the Investors and Exporters window”, Cordros Capital projected.  

T-Bill Sheds 32 Basis Points as CBN Fails to Float Auction