Yield on Nigerian Treasury Bills Increased as Banks Sold Off

Yield on Nigerian Treasury Bills Increased as Banks Sold Off

Average yields on Nigerian Treasury bills increased as local banks sold off instruments to meet their funding need, according to analysts, after noting that there was an improvement in the financial system liquidity.

The robust liquidity in the financial system stabilise short term rates as data from the FMDQ platform shows that open buy back (OBB) and overnight lending rate (OVN) dropped.

The overnight (OVN) rate contracted by 50 basis points week on week to 17.3%, according to Cordros Capital as about N407.71 billion inflows from FAAC disbursements and N59.54 billion FGN bond coupon payments outweighed funding pressures for the monthly FGN bond auction totalled N277.05 billion and CBN’s weekly FX auction.

“We expect the overnight lending rate to expand next week, as we expect the CBN to maintain its tight liquidity management posture and mop up the combined N145.77 billion inflows from N105 billion open market operations (OMO) maturities and N40.77 billion FGN bond coupon payments.

Amidst rough edges in the fixed income space with a slowdown in headline inflation and low securities issuance by the government in the second half of 2021, the treasury market has maintained a cold outlook.

Analysts said the Treasury bills secondary market traded with bearish sentiments, as local banks sold off instruments to meet their funding obligations.

Thus, the average yield expanded by 6 basis points to 6.0%. Across the market segments, the average yield at the OMO segment expanded by 8 basis points to 6.4%.

Analysts at Cordros Capital said in a report that the average yield at the Nigerian Treasury bills segment closed higher by 6 basis points to 5.6%.

“In the coming week, we expect the outcome of the NTB auction to shape the direction of yields in the T-bills market. At the auction, the CBN is set to roll over N111.87 billion worth of maturities to market participants”.

In the week, bullish sentiments returned to the federal government bonds secondary market due to increased demand in anticipation of a lower yield environment following the FGN’s Eurobond issuance. This was also supported by investors seeking to fill lost bids from Wednesday’s bond auction.

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Consequently, the average yield contracted by 7 basis points to 11.2%.

“We highlight that buying activity was spread across the benchmark curve, with the average yield declining at the short (-15bps), mid (-12bps) and long (-8bps) segments following demand for the JAN-2026 (-41bps), MAR-2027 (-68bps) and MAR-2035 (-22bps) bonds, respectively”, Cordros Capital stated.

At the bond auction, the DMO offered instruments worth N150.00 billion to investors through re-openings. Federal Government of Nigeria re-opening 30-year bond spot rate increased to 13 per cent from 12.80 per cent at the just concluded primary market bond auction conducted by the Debt Management Office.

The 12.98 FGN Mar 2050 has 28 years 6 months to mature recorded 121 bids with 95 successful as DMO allotted N118.83 billion from a total subscription of N156.31 billion.

Following the significant level of demand with subscription levels of N334.32 billion; and bid-to-offer: 2.2x, the DMO eventually over-allotted instruments worth N277.05 billion, resulting in a bid-to-cover ratio of 1.2x.

“Next week, we maintain our view of lower yields given our expectations of a limited supply of debt instruments and deliberate efforts by the DMO to reduce domestic borrowing costs for the government.”, analysts projected.

Yield on Nigerian Treasury Bills Increased as Banks Sold Off