Treasury Bills in Rally Mode, Rates Slump
The ongoing rally in the Nigerian Treasury bills market has forced the yield curve to pull back from upward repricing. Meanwhile, healthy liquidity in the financial system is projected to sustain the ongoing buying interest in the Central Bank of Nigeria bills.
Trading data shows that the average yield on Treasury bills continues to decline as the market maintained bullish momentum amidst a high interest and inflation rate environment.
Over the past few trading outing, the yield has been on declining, though the benchmark interest rate increased 100 basis points to 16.50% in November 2022 and the inflation rate rose to 21.47% in the same period.
In the just concluded week, market analysts said bullish sentiments persisted in the Nigerian Treasury Bills secondary market following an increase in demand levels, a similar trend spotted at the primary market auction.
Strong demand helps the monetary policy authority’s spot rates cut seen in the past few weekly auctions conducted even with both inflation and interest rate surge.
At the secondary market, demand was supported by the healthy system liquidity, especially at the top of the week, and market participants looking to the Nigerian Treasury bills secondary market to fill lost bids in the CBN auction conducted midweek.
As a result, the average yield across all instruments dipped by 19 basis points to 8.6%. Across the market segments, Cordros Capital said in its market note that the average yield contracted by 24 basis points and 2 basis points to 8.2% and 10.1% at the NTB and OMO segments, respectively.
At the Treasury auction, the CBN offered bills worth N13.58 billion. The bills were split into N8.50 billion for the 91-day, N1.28 billion for the 182-day, and N3.80 billion for the 364-day. >>>Yields Pull Back as Nigeria’s Bonds Attract Investors
Traders said demand at the auction was high, although lower than the previous auction, as the total subscription settled at N446.06 billion compared to N728.57 billion in the last auction.
Cordros Capital said investors showed more interest in the longer-dated bills with a subscription level of N399.15 billion, translating to 89.5% of the total subscription. >>>Naira on Recovery Mode after CBN Ends Dollar Supply to BDCs
The CBN allotted precisely what was offered at respective stop rates of 5.50% (previously: 6.49%), 7.30% (previously: 8.00%), and 9.89% (previously: 13.05%), according to auction results cited by analysts.
MarketForces Africa gathered that the 364-day bill, in particular, was issued at a lower rate on account of a relatively higher than expected subscription level resulting in auction’s bid-to-cover ratio of 32.84x.
Analysts at Cordros Capital envisage yields in the Nigerian Treasury bills secondary market will tilt downwards from current levels with demand expected to remain strong following an expected liquidity influx this week. #Treasury Bills in Rally Mode, Rates Slump
