Yield Dips as Demand for T-Bills Rises, Banks to Selloff Position
In the secondary market, the average yield on the Treasury bills instrument shrinks on Friday over increased demand by market participants to meet the unmet subscriptions at the primary market auction conducted on Wednesday.
While the yield curve has seen much pressure, analysts are expecting an upward re-pricing next week as banks are expected to sell off their position to meet funding requirements due to the anticipated liquidity squeeze, according to Cordros Capital.
The financial system liquidity sees pressures on Friday as short term rates jerked up significantly. Today, money market rates increased by an average of 1267 basis points following the FX retail auction by the apex bank.
Inflows from Federation Account Allocation Committee disbursement of about N387.00 billion, OMO maturities worth N33.00 billion and FGN bond coupon payments of N17.87 billion saturated the system and limited the impact of outflows for NTB net issuances totalled N97.00 billion and CBN’s weekly OMO worth N25.00 billion and CBN FX auctions.
The Overnight (O/N) rate increased by 12.67 per cent to close at 15.67 per cent as against the last close of 3.00 per cent, and the Open Buy Back (OBB) rate also increased by 12.67 per cent to close at 15.00 per cent compared to 2.33 per cent on the previous day
Nigerian Treasury Bills secondary market closed bullish as average yield across the curve decreased by 6 basis points to close at 4.85 per cent from 4.91 per cent on the previous day.
Average yield across the medium-term maturities declined by 17 basis points, various analysts’ market reports show. However, the average yields across short-term and long-term maturities remained unchanged at 3.52 per cent and 5.81 per cent, respectively.
FSDH Capital hinted that NTB 12-May-22 (-104 bps) maturity bill witnessed heavy buying interest, while yields on 19 days to maturity bills remained unchanged.
In the open market operations market, the average yield across the OMO bills curve closed flat at 5.50 per cent. Average yields across short-term, medium-term, and long-term maturities remained unchanged at 5.36 per cent, 5.54 per cent, and 6.15 per cent, respectively.
Next week, inflows from OMO maturities worth NGN54.30 billion and FGN bond coupon payments totalling NGN5.63 billion are expected to hit the system, Cordros said in a market report.
MarketForces Africa reported that the CBN held an OMO auction on Thursday, selling bills worth ₦30.00 billion across the 117-day (₦5.00 billion), 187-day (₦5.00 billion), and 341-day (₦20.00 billion) tenors.
According to the auction result, the OMO Bills stop rates remained unchanged at 7.00 per cent, 8.50 per cent, and 10.10 per cent, respectively, though the auction was oversubscribed, indicating a subscription level of 476 per cent (₦142.78 billion).
However, demand was skewed towards long tenor maturity bills with bid-to-cover ratios settling at 3.20x (117-day), 4.10x (187-day), and 5.31x (341-day), according to FSDH Capital note.
Also, FGN bonds secondary market closed on a flat as the average bond yield across the curve closed flat at 8.17 per cent. Average yields across the short tenor and medium tenor of the curve remained unchanged, while the average yield across the long tenor of the curve declined by 1 basis point.
The 27-MAR-2050 maturity bond was the best performer with a decrease in the yield of 6 basis points, while the FGNSB 12-FEB-2022 bond was the worst performer with an increase in yield of 3 basis points.
Going into next week, FSDH Capital projected that the secondary bond market is likely to remain subdued in the short term.
In the short term, analysts at Cordros Capital said that they expect yields to oscillate around current levels, driven by thin maturities and deliberate efforts by the DMO to reduce domestic borrowing costs for the government.
“Also, we expect non-bank liquidity to be geared towards relatively higher non-sovereign instruments, thus tempering demand”, analysts added. #Yield Dips as Demand for T-Bills Rises, Banks to Selloff Position
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