Yield Steadies in Treasury Market as Bondholders See Mixed Outturn
Average yield trades steady in the Nigerian Treasury Bills secondary market on Monday as trading activity was on a calm note. However, bondholders see contraction after inflation drop moderated negative real returns in the fixed income space.
Some analysts predicted that yield on fixed income instruments will see more pressure as a high subscription level at primary market action would rather keep spot rates low. Last week, the spot rate on the long-dated Nigerian Treasury Bills auction conducted by the central bank declined to 7.25% from 7.50% as the bid ratio came stronger than expected.
This offers the monetary authority advantage to reduce costs as demand outstripped supply in what appears to be a pattern in the second half of the financial year 2021 as the inflation rate continues to move southward.
With headline inflation sloping down, the negative real return on investments in fixed income securities would be on the downward movement. That would likely reduce the spot rate on 364-day bills in the next primary auction, according to analysts.
In the money market, short-term, interbank rates moderate as pressure on the financial system liquidity eased amidst inflow into the space. The average interbank rate dropped by 450 basis points to 15.25% following 450 basis points decreased in the Open Buy Back (OBB) rate to 15%.
Meanwhile, the overnight lending rate also contracted 450 basis points to close at 15.50%, data from the FMDQ Exchange platform shows as naira gained 0.08% against the U.S. Dollar at the Investors and Exporters foreign exchange window to close at N 414.73.
In a market report, analysts at Cordros Capital Limited attribute the decline to the absence of significant funding pressures on the financial system. Today, activities at the Nigerian Treasury Bills secondary market traded on a calm note in today’s session. Consequently, the average yield remained flat to close at 5.20%.
Elsewhere, the average yield at the open market operations (OMO) segment contracted by 8 basis points to 6.4%. In the bond segment, activities at the Federal Government of Nigeria bond secondary market was mixed in today’s session following a 2 basis points drop in the short tenor, a 2 basis points climb in the mid tenor while the long end of the curve remained flat.
As a result, the average yield climbed slightly by 1 basis point to close at 11.34% following the Investor’s demand for the APR-2023 (-3bps), MAR-2027 (-29bps), and APR-2049 (-33bps) bonds respectively.
Activities at the Eurobond market traded on a bearish note in today’s session following expansions across all instruments. In sum, the average yield was climbed by 4 basis points to close at 6.42%. / Yield Steades in Treasury Market as Bondholders See Mixed Outturn
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