Treasury, FGN Bond Yields Mixed as Market Devalues Naira

Treasury, FGN Bond Yields Mixed as Market Devalues Naira

The average yield on Nigerian Treasury Bills inched higher moderately on Thursday while buying interest in Federal Government of Nigeria (FGN) bonds drag yield lower in the secondary market.

Today, the official exchange rate worsens at the Investors and Exporters window as the naira depreciated by 0.5% to N422.50 per unit of United States dollar amidst rising demand for the greenback.

At the Central Bank of Nigeria (CBN) primary market auction (PMA) conducted midweek, spot rates were steadied across tenors amidst tepid subscriptions by investors. READ: CBN Devalues Naira 12.95% despite Rising Foreign Reserves

The auction result shows that the 91-day Treasury spot rate closed at 2.50%, the same rate as the previous offer on May 25, 2022. Also, 182-day tenored bills were sold at 3.84% while the spot rate for 364-day was priced at 6.44% – unchanged from the previous auction.

It appears that the CBN Auction was undersubscribed despite healthy liquidity in the financial system as investors seek higher rates. The apex bank offered N23.23 billion, N78.90 billion and N164.10 billion across 91-day, 182-day and 364-day tenors.

The PMA subscription record shows that investors subscribed for N10.21 billion, N69.82 billion and N353.89 billion across Treasury bills tenored but sales was N7.66 billion, N19.35 billion and N179.89 billion.

In the money market, there was lesser pressure on the financial system liquidity, thus keeping short term rates lower. Both open buy back and overnight rate slowdown, according to data from FMDQ Exchange.

The overnight lending rate contracted by 183 basis points to 6.5%, despite funding pressures from net Nigerian Treasury Bills issuances worth N15.37 billion.

In the secondary market, trading activities in the Nigerian Treasury bills closed on mixed sentiments albeit with a bearish bias, according to Cordros Capital. The average yield on T-bills expanded slightly by a basis point to close at 4.0%.

Across the curve, traders said in the market note that the average yield contracted at the short (-2bps) end following demand for the 63- day to maturity (-15bps) bill. However, yield expanded at the mid (+6bps) segment as participants sold off the 126-day to maturity (+17bps) bills. The average yield was flat at the long end.

Elsewhere, the average yield was flat at 4.4% in the open market operations (OMO bills) segment. OMO bills spot rates at the CBN auction had closed at 7%, 8.50% and 10.01% across 103-day, 180-day and 383-day instruments.

In the FGN bond segment, trading activities in the secondary market were bullish, as the average yield contracted by 5 basis points to 11.1%.  Across the benchmark curve, Cordros Capital stated that the average yield expanded at the short (+3bps) end as investors sold off the MAR-2027 (+7bps) bond.

Yields on bond instruments contracted at the mid (-14bps) and long (-4bps) segments following buying interests on the JUL-2030 (-19bps) and JUL-2034 (-17bps) bonds, respectively. #Treasury, FGN Bond Yields Mixed as Market Devalues Naira