Treasury, OMO Bills Yields Bump as PMA Spot Rates Steady
In the secondary market, the average yields bump as the Central Bank of Nigeria’s Treasury bills and open market operations bills (OMO bills) primary market auctions’ (PMA) spot prices were steady, according to traders’ notes.
During the week, the CBN will conduct a primary market auction for Nigerian Treasury bills where the apex bank is expected to sell N214.74 billion worth of maturing instruments to market participants.
Market analysts told MarketForces Africa that the subscription level will be strong given a relatively healthier financial system liquidity – with a net long position of more than N352 billion.
For investors, it costs money to keep money amidst a hot red inflation rate that has widened real return on fixed income market investment – though, most analysts think the end to financial repression has started since May when monetary authority hiked interest rate by 150 basis point with another 100 basis points increased two months after.
Nigeria’s benchmark interest rate hikes triggered yield repricing in the local debt capital market, though the yield curve still has strong exposure to inflationary pressures.
Again, the Oliver twists market participants still await a fresh catalyst that would propel spot rates hikes on government instruments amidst an expectation of higher borrowings from the domestic debt market in the latter part of the year. Higher spot rates on short term instruments have widened CBN balance sheet funding costs, according to some analysts who spoke with MarketForces Africa.
“This is not good for Nigerian government with bogus budget deficit gap but Eurobond costs would actually be worse for the nation whose local currency is falling freely”, Broadstreet analysts told MarketForces Africa in a chat.
In the secondary market for trading Nigerian government instruments, the yield curve swings moderately following seesaw trading patterns while market participants gauge the impact of capital imports’ decline in the second quarter of 2022.
However, short term decline as liquidity pressures on the system eased. Money market rates slowdown as FAAC receipts boosted financial liquidity. Weekly data comparison indicates that the overnight rate maintained a downtrend through the week and eventually settled 117 basis points lower to 12.5% on Friday.
In a report, market analysts at Cordros Capital said the average system liquidity level for the week settled at a net long position of N352.31 billion versus a net short of N70.07 billion in the previous week. READ: Higher Spot Rates on T-Bills Auction Drive Yields Upward
Analysts attribute the surge to inflow from July FAAC disbursement worth N490.00 billion which they noted to have offset outflows for FX retail and OMO auction valued at N50.00 billion.
In the new week, Cordros capital analysts said they expect the rate to trend northwards as outflows for CBN’s weekly auctions and arbitrary cash reserve ratio (CRR) debits, if any, are likely to pressure system liquidity.
In the treasury bills market, fixed income traders said trading activities sustained last week’s sentiments, remaining bullish on account of the improved system liquidity. Consequently, the average yield across all instruments contracted by 9 basis points to 8.5%.
Across the segments, traders hinted that the average yield fell by 14 basis points to 11.1% in the OMO bills secondary market and by 7 basis points to 7.7% in the Nigerian Treasury bills segment.
Last week in the open market operation (OMO bills) auction, the apex bank offered and sold N50.00 billion bills to market participants and maintained stop rates across the three tenors, as with previous auctions. # Treasury, OMO Bills Yields Bump as PMA Spot Rates Steady
