T-Bills Return Dips Amidst Liquidity, Inflation Pressures
Reacting to Nigeria’s worsening inflation surge, the average yield on Nigerian Treasury bills declined following a buying momentum in the secondary market on Tuesday. The headline inflation rate worsened to 24.08%, up by 129 basis points from 22.79% in June 2023.
Both interest and inflation conditions continue to worsen, exposing naira assets to negative returns which kept foreign investors away from participating strongly in the fixed income market. At the auction last week, the Central Bank of Nigeria (CBN) put forth N153.98 billion worth of securities for sale, out of which N836.30 billion was subscribed by investors.
Futureview Financial Limited told investors that the overwhelming demand led to a significant reduction in stop rates, which settled at 5.00%, 5.90%, and 9.80% for the 91-day, 182-day, and 364-day tenors, respectively.
In comparison, the previous auction had seen higher stop rates of 6%, 8%, and 12.15% for the same tenors, according to CBN’s primary market auction result. The surge in demand was supported by liquidity levels in the system. However, debit for the Treasury auction has affected the market funding profile.
Due to significant outflow from the system, liquidity in the money market remained tightened. Specifically, the system liquidity contracted by 35.23% to N193.21 billion on Tuesday.
Short-term benchmark rates slumped, according to data from FMDQ Exchange. The open repo rate (OPR) surged to 8.40%, 260 basis points above the previous level. Also, the overnight lending rate surged by 230 basis points 7.30% over tight liquidity conditions in the market.
Then, The Nigerian Interbank Treasury Bill’s True Yield saw an upward movement for most tracked tenors, despite the average secondary market yield on T-bills closing lower at 7.25%.
Across the curve, most of the day’s activity was witnessed at the long (-9bps) end as market participants demanded the 296-day to maturity (-105bps) bill; the average yield was flat at the short and mid segments.
Elsewhere, the average yield contracted by 41 basis points to 11.8% in the OMO segment. In the forex market, the Naira depreciated against the US dollar at the Investors and Exporters FX windows, trading at N774.77, about a 4% decline from its opening spot rate of N744.10. #T-Bills Return Dips Amidst Liquidity, Inflation Pressures Naira Steadies as Banks Issue Update on FX Purchase
