Treasury Yield Falls as CBN Committee Discusses Policy Rates

Treasury Yield Falls as CBN Committee Discusses Policy Rates

In the fixed income market, the average yield on Treasury instruments falls as the Central Bank of Nigeria (CBN) monetary committee discusses policy rates in its July meeting.  The bullish run continues after Nigerian Treasury Bills saw 2 basis points declined in average yield in the just concluded week.

An improvement in liquidity position in the financial system market eased pressure on interbank rates. Today, the overnight lending rate contracted by 13.00 percentage points to 15.8% in the absence of any significant funding pressures on the system, says Cordros Capital in an email.

Trading in the Nigerian treasury bills secondary market ended on a bullish note today again as the average yield contracted by 17 basis points to 6.7%.

Market participants appear to be engaged in some sort of cautious trading while CBN monetary committee continues a 2-day deliberation on the benchmark rates.

For the fixed income market, MPC decision remains key market driver and investors positioning amidst demand pressure due to constrained supply of government instruments,

Some analysts projected that due to the size of Federal Government deficits for the year, demand pressure could ease in the second half of the year.

Analysts however said across the benchmark curve, the average yield was flat at the short and mid segments but contracted at the long (-32bps) end due to demand for the 213 day to maturity (-65bps) bill.

Elsewhere, Codros Capital analysts hinted that the average yield at the open market operations (OMO) segment expanded by 4 basis points to 8.6%.

Similarly, the Treasury bond secondary market was mixed with a bearish tilt. Today, the average yield in this space expanded by 7 basis points to 12.1%.

Financial Market report shows that average yield expanded at the short (+26bps) end due to a sell-off of the JAN-2022 (+133bps) bond but contracted at the long (-2bps) end following the demand the MAR-2036 (-13bps) bonds; the average yield was flat at the mid-segment.

Last week in the Nigerian Treasury market, average yield marginally dipped 2 basis points week on week to close at 6.80% from 6.82%, thus sustained the bullish run.

Afrinvest said in its report that demand on mid- and long-dated maturities fueled the performance as average yields contracted a basis point and 7 basis points respectively.

The liquidity position is expected to strengthen as the total sum of N216.19 billion worth of maturing Nigerian Treasury Bills will be rolled over by the Apex Bank in a Primary Market Auction this Wednesday.

“We expect improved activity levels in the Treasury Bills secondary market this week, given the buoyed liquidity levels from maturing instruments”.

A total sum of ₦216.19 billion from maturing Treasury Bills and ₦16.84 billion from open market operations are expected to hit the financial system during the week. 

“Thus, we advise investors to continue to position in relatively attractive bills across the curve while looking out for possible corporate offerings”, Afrinvest added.

Also, The FGN bond secondary market furthered its bullish trend last week, as investor demand ramped up towards the end of the week, given the elevated yield levels at the start of the week as unmet bids filtered in from the PMA that held on Monday.

As a result, average yield across all maturities declined 7 basis points in the week to settle at 12.09% from 12.16% the previous week with the most buying interests recorded on the 22-Jan-26 and 18-Jul-34 maturities.

At the PMA, the Debt Management Office (DMO) offered ₦150.0 billion instruments which analysts said were met with a strong overall subscription of 2.1x.

Interestingly, analysts said the DMO under-allotted the 2028s but slightly over-allotted the 2036s and 2050s.

Read Also: Naira Falls at Investors Window as Fixed Income Securities Trade Flat

Also, Afrinvest said the highest subscription at the auction was the 2050s which had ₦156.26 billion subscriptions. The stop yields for the 2028s and 2036s were at current market offers, while the stop yield for the 2050s was moderately lower than present market offers.

Treasury Yield Falls as CBN Committee Discusses Policy Rates