Yield Plunges after CBN Refinanced T-Bills at Lower Rates

Yield Plunges after CBN Refinanced T-Bills at Lower Rates

Trading activities in the Treasury bills secondary market ended on a bullish note on Friday as the buoyant system liquidity spurred demand for T-bills at the last two trading sessions of the week, just after the apex bank primary market received flurry of subscriptions.

Thus, the average yield across instruments contracted by 149 basis points to 7.3%. Cordros Capital told Investors via email that the yield movement is non-inclusive of OMO instruments given the maturity of all outstanding instruments.

Yields on Nigerian Treasury bills skid as the Central Bank of Nigeria (CBN) refinance bills at lower spot rates following increased demand by investors.

At its primary market auction conducted midweek, the CBN refinanced N131.46 billion worth of T-bills at lower stop rates for most maturities. The auction was oversubscribed with a subscription level of NGN819.10 billion, translating to a bid-to-cover ratio of 6.23x, a strong improvement from 1.87x

Traders told MarketForces Africa at the weekend that subscription levels spiked as investors seek to maximize returns based on their respective portfolio strategies, raising positions in short-term government securities in an effort to manage movement in liquidity positions.

Specifically, stop rates for 91-day and 364-day bills moderated to 5.30% (from 6.00%), and 10.17% (from 14.70%), respectively, according to Cowry Asset Management analysts’ notes.

However, given the low demand levels, stop rates were unchanged at 8% for the 182-day bills. Elsewhere, in response to the increase in stop rates for all-day bills, activity at the secondary market was bullish.

Meanwhile, OMO activities were muted in the absence of maturing and auctioned bills while the financial system liquidity improved.

The liquidity position in the market was boosted by FAAC inflows (N350 billion) and FGN bond maturity and coupon repayments worth N935 billion.  The hefty liquidity position which is a reverse of the previous trend resulted in a decline in the interbank rate.

In the primary market auction for Treasury bills (T-Bills), the CBN conducted two rounds of auction offering a total of ₦281.1 billion across the 91, 182, and 364-day instruments.

In April, investors’ demand for the bills was strong with the bid-to-cover ratio printing at 3.91x, slightly higher than the prior month when it printed at 3.44x.

The 364-day bill recorded the most interest with a bid-to-cover ratio of 4.07x, and the apex bank sales printed at ₦265.6 billion in the month. Trailing, the bid-to-cover ratio of the 91 and 182- day instruments stood at 1.55x and 1.01x respectively, following sales worth ₦4.5 billion and ₦11.0 billion.

Compared to the last auction in March, stop rates fell 70 basis points and 457 basis points respectively to 5.3% and 14.7% on the 91 and 364-day instruments.

Meanwhile, the rate on the 182-day bill remained unchanged. In the secondary T-bills market, the average yield rose 25 basis points in April to 8.3%, driven by sell pressure on the 91-day (yield: +90bps) and 364-day bills (yield: +65bps).

In May, Afrinvest Limited expects system liquidity to tighten as market participants reassess portfolio needs while CBN plans to roll over T-Bills maturities worth ₦324.4 billion. #Yield Plunges after CBN Refinanced T-Bills at Lower Rates

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