Yields Decline as Investors Bet on Treasury, OMO Bills
The average yield in Nigerian Treasury Bills declined marginally as local investors bet against inflation conditions. The market has continued to see elevated yield, a disincentive to deposit money banks’ lending amidst market expectation that interest rate benchmark will be increased at the central bank policy committee meeting scheduled for next week.
Following a strong yield repricing by the apex bank at the primary market auction, investors are hoping to see a higher return on investment in the fixed income market on the back of a double-digit headline consumer price index and interest.
As the spot rate on 364-day bill was priced higher to 19%, the real return on investment was positively affected but later hit by a 98 basis points inflation surge registered in January 2024.
Traders said changing market dynamics are forcing yield repricing on naira assets amidst large borrowing instruments sales by the authority. The debt office has already taken out 30% of borrowing target in 2024 and the apex bank adjusted Treasury bills sales size to N1 trillion, which was greeted by 2x of the offer put before investors at the primary market.
In the secondary market, Nigerian treasury bills experience moderate buying interest on Wednesday. Consequently, the average yield declined marginally by a basis point to close at 15.4%. In its update, Cordros Capital Limited told investors via email that across the curve, the average yield closed flat at the short end but contracted at the mid (-1bp) and long (-1bp) segments.
The yield contraction was attributed to buying interest in the 16-day to maturity (-1bp) and 351-day to maturity (-1bp) bills, respectively. In the same vein, the average yield pared by 1bp to 17.8% in the OMO segment in the secondary market.
Last week, the average treasury yield increased by +10 basis points to close at 15.5% while the average yield for OMO bills decreased by –10bps to close at 17.8%. In the money market, short-term benchmark interest rates increased as liquidity levels came under pressure. Interbank rates climbed across all maturities, reflecting thin liquidity conditions, Cowry Asset Limited said in its market note.
Overnight interbank borrowing rate rose by 481 basis points to 26.00% from 21.19%, the investment firm wrote. In the same vein, key money market rates jerked up. The open repo rate spiked from 23.01% to 24.50% Also, the overnight lending rate increased from 23.94% to 25.42% in the absence of significant inflows into the financial system. Gombe Govt Earmarks N5.2bn for Payment of Retirees’ Gratuities
