T-Bills Buyers See Yield Slowdown as Spot Rate on 364-Day Rises
The average yield on Treasury bills instruments slide as the market keeps spot rates at the Central bank auction last week after Federal Government Eurobond calls in September. With enough borrowing arrangements in the first half of 2021, Nigeria’s Debt Management Office has slowdown bond issuance in the second half of 2021.
Ahead of its global investors, Eurobond calls, DMO had hinted that the foreign currency borrowings was necessitated in order to avoid crowding out corporates from assessing the local capital market for funding.
Meanwhile, interbank rates closed lower last week amidst a slowdown in liquidity pressure in the money market, according to data from the FMDQ platform.
The overnight rate contracted by 150 basis points week on week to 15.8%, said Cordros Capital in a market report, noted that the liquidity surfeit from FAAC disbursements, OMO maturities and FGN bond coupon payments offset late debits for cash reserve ratio (CRR), weekly FX auction and net NTB issuances worth N3.54 billion.
According to Cordros Capital, the financial system liquidity saw an inflow of N407.71 billion from FAAC, N101.61 billion open market operations maturities and N40.77 billion from FGN coupon payment.
“In the absence of significant inflows next week, we expect the overnight lending rate to remain elevated in the double-digit region as funding for CBN’s weekly auctions are likely to drain system liquidity”, the firm projected.
Trading activities in the t-bills secondary market was bullish, as average yield across all instruments declined by 22 basis points to 5.8% following the healthy system liquidity in the early parts of the week, and as market participants sought to cover lost bids from Wednesday’s Treasury Bills primary market auction.
Across the market segments, analysts report shows that the average yield contracted by 11 basis points to 6.3% at the OMO segment and by 32 basis points to 5.3% at the Nigerian Treasury Bills segment.
At the T-bills primary auction conducted mid-week, the CBN offered N111.87 billion for sale and eventually allotted N115.42 billion, split as N4.61 billion of the 91-day, N2.09 billion of the 182-day and N108.71 billion of the 364-day bills.
Also, their respective stop rates were unchanged from the previous auction at 2.50%, 3.50% except for the spot rate on 364-day bills which jumped to 7.50% from 7.20%. With a subscription level of N174.74billion, analysts at Cordros Capital highlighted that demand was strong at this auction with Bid to cover ratio settling at 1.5x.
“We expect yields to trend higher in the coming week, as investors react to the recent increases in auction stop rates at the primary market”, analysts projected despite low yield repricing catalysts in the market.
In the bond space, activities in the secondary market ended with mixed sentiments, albeit with bullish bias, as inflows from bond coupon payments supported demand levels despite sell pressures observed after the slight uptick in bond and Treasury bills auction stop rates.
Overall, the average yield pared by 3 basis points to 11.2%, according to analysts note. Cordros Capital analysts hinted that across the benchmark curve, the average yield declined at the short (-28bps), mid (-3bps) segments following demand for the APR-2023 (-45bps) and MAR-2027 (-6bps), respectively.
Elsewhere, it expanded at the long (+13bps) end as investors upwardly repriced the JUL-2045 (+54bps) bond.
In the face of reduced supply by the DMO, analysts maintain expectations of lower average yields in the medium term as investors are likely to continue cherry-picking attractive instruments across the yield curve.
Read Also: Treasury Bill Yield Slowdown as Investors Position for Auction
T-Bills Buyers See Yield Slowdown as Spot Rate on 364-Day Rises
