Treasury Bills, Bonds Yields Gap Widens Ahead of Auctions
The yields gap between Nigerian Treasury bills and local bonds has increased as investors selectively choose assets to enhance their portfolios through transactions in the secondary market.
The average benchmark yield on Nigerian government bonds settled at 15.97% in the secondary market on Monday. Meanwhile, the average yield on treasury bills surged to 17.35%, according to a separate note released by fixed income market traders.
The fixed income market is anticipated to experience a sharp decline in yield, and the trend will be broad-based, except for the OMO bills papers.
To attract foreign portfolio investors into the Nigerian market, the Central Bank of Nigeria (CBN) offers special rates across standard OMO bill maturities.
OMO bills attract the highest spot rates above other fixed income securities to satisfy the CBN need to attract FX from offshore investors who required to convert their US dollar wallets to naira at the official window.
The secondary bond market traded on a quiet note, though with a bearish bias amid tight liquidity conditions, and as investors focused on this week’s Treasury bill auction, CardinalStone Securities Limited said in a note. The average yield on government bonds closed flat at 15.97%.
In the Treasury bill space, investors bought up the 8-Oct (-30 bps) paper, resulting in a 3 bps moderation in average yield to 17.35%. Though soft, demand was concentrated across all maturities, while the Oct-26 papers saw heavy investors’ interest, posting yield declines of 30 bps.
The CBN will float N650.0 billion across the standard tenors on Wednesday. Last week, the fixed income market closed the week on a mixed note. While activity in the bond segment remained relatively quiet, modest buying interest was observed in select mid- and long-dated maturities.
In contrast, yields in the OMO segment surged sharply, reflecting limited secondary market demand. The CBN conducted an OMO auction during the week, offering a total of N600.00bn across the 193-day and 249-day maturities.
Demand was notably strong across both tenors, with the 193-day bill receiving N719.00bn in subscriptions and the 249-day bill attracting a much larger N1.40trn, indicating investors’ preference for longer maturities offering marginally higher yields.
The CBN fully allotted the subscriptions, selling the 193-day and 249-day bills at stop rates of 19.40% and 19.89%, respectively. In the secondary market, average yields inched down slightly by 1bp to 15.97% per annum from 15.98% per annum in the previous week.
Movements across the curve were largely muted. At the short end, yields rose marginally by 1bp to 16.26% per annum, while mid tenor instruments declined by 3bps to 15.82% per annum. The long end also eased marginally by 1bp to 15.55% per annum.
Notable yield contractions were recorded on the Mar 2035 and Jun 2038 bonds, while mild upward adjustments occurred on the May 2033 and Apr 2049 papers.
The OMO market witnessed significant upward repricing during the week, as average yields spiked by 105bps to 21.62% per annum from 20.57% per annum the previous week.
The sharp yield ascent was most pronounced on short- and mid-tenor maturities. Specifically, short-dated OMO bills climbed by 146bps to 22.50% per annum, mid-dated papers rose 85bps to 21.05% per annum, while long-dated maturities moderated by 131bps to 19.31% per annum. Wema Bank Falls, Investors Rotate Positions Ahead of Earnings
