Treasury Bills Yield Steadies as Inflation Weighs on Sentiment

The average yield on Nigerian Treasury bills steadied around 3% amidst accelerating headline inflation. In the secondary market, traders reported a thin trading session as investors weighed price instability despite hope for an economic resurgence.

December headline inflation increased by +72 basis points to 28.92% year on year. The uptick in the headline inflation was partly attributed to the seasonal demand boost associated with end-year festivities.

This signifies possible interest rate tightening as loosening appears unlikely for the apex bank in the coming monetary policy committee meeting. Traders said they expect yield repricing as the market awaits new catalysts to drive the action.

Sustained bullish performance in the equities market has supported a swing in the yield curve while liquidity level continues to set trading direction. In the money market, short-term benchmark interest rates reacted negatively to a liquidity squeeze in the space. 

Data from the FMDQ platform showed that the overnight lending rate expanded by 395 basis points to 21.8%, in the absence of any significant funding flow into the financial system.

Key money market rates, including the open repo rate (OPR) and overnight lending rate (OVN), witnessed increases by 5.00% and 3.95% to close at 21.58% and 21.75%, respectively, according to a report by Cowry Asset Limited.

The Nigerian Interbank Borrowing Rate (NIBOR) displayed downward trends across all tenor buckets indicating liquidity ease in the system, analysts said in a note. Notably, the Overnight NIBOR declined by 3.00% to 17.5%. Also, the 1-month, 3-month and 6-month NIBOR experienced declines of 2.75%, 2.57% and 1.88%, respectively. 

The liquidity position impacted transactions in the secondary market, simultaneously when fixed interest securities investors weighed inflation trend versus portfolio return. Nigeria Eurobond Slumps after CBN Resumes OMO Auction

The Treasury bills secondary market traded in a lull as the average yield remained 3.0%. Meanwhile, the average yield pared by a basis points to 8.4% in the OMO bills segment. #Treasury Bills Yield Steadies as Inflation Weighs on Sentiment