Treasury Yield Steadies as Fixed Income Market Keeps Low Rates

Treasury Yield Steadies as Fixed Income Market Keeps Low Rates

The average yield on Nigerian Treasury Bills secondary market steadies as investors await upward repricing catalysts to maximise returns. Today, Treasury space traded mostly flat as the average yield remains unchanged at 4.6%.

The fixed income market has remained largely cold in the third quarter of 2021, a new development that started after the headline inflation rate started slowing down and the decision of the Central Bank of Nigeria to hold key rates to stimulate economic growth.

In addition, the Nigerian government has raised a significant amount of total local borrowings in the first half of 2021. Though, the possibility exists that more local borrowings will be accessed via the fixed income market in the latter part of the year.

A total sum of N1.81 trillion was raised via treasury instruments in the first half, the move that prompted a higher yield repricing but started slowing down toward the latter part.

These, coupled with the fact that the apex bank has maintained a distance from the open market operations, thus limit issuance, resulting in large free funds.

For market participants, it cost money to keep the money. At primary auctions conducted by the CBN and as well as Debt Management Office, the subscription level has remained relatively higher due to the lack of alternative investment windows.

Thus, robust participation at these auctions continually resulting to decline in spot rates for long end tenor instruments.  Elsewhere, the average yield at the open market operations (OMO) segment plummeted by 162 basis points to 6.0%.

In the money market today, the overnight lending rate increased 0.46% to 18.33% as analysts at Codros Capital noted the outflows for CBN’s weekly OMO auction that impacted the financial system liquidity.

Open buyback jumped 0.17 per cent to 17.67% as Nigerian local currency, naira, depreciated 0.02% to N411.67 at the investors and exporters window on Thursday, according to data from FMDQ.

The Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate was up 0.02 per cent to N411.26 to a dollar but depreciated to N520.00 at the parallel market. Also, trading activities in the Federal Govt. bond secondary market ended on a bullish note as the average yield tapered by 14 basis points to 11.3%.

Across the benchmark curve, analysts spotted contraction in the average yield at the short (-11bps), mid (-30bps) and long (-8bps) segments following demand for the MAR-2024 (-38bps), FEB-2028 (-39bps) and MAR-2036 (-24bps) bonds, respectively.

Read Also: Nigerian Treasury Bill Yield Eased Seven Basis Points to 0.37%

Treasury Yield Steadies as Fixed Income Market Keeps Low Rates