Yields Drop as DMO Roll over 87% of Maturing Bills
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Yields Drop as DMO Roll over 87% of Maturing Bills

Again, in the just concluded week yields on Treasury Bills declined due to surplus liquidity and the recently published fourth quarter of 2020 Nigerian Treasury Bills (NTB) auction calendar.

In its auction calendar for the last quarter, Nigeria’s Debt Management Office revealed plan to roll over 87% of maturing bill.

In the money market, funding pressures remained benign in the just concluded week as liquidity increased.Yields Drop as DMO Roll over 87% of Maturing Bills

Chapel Hill Denham analysts said in a note that the financial system liquidity opened sharply higher at N704 billion as against N261 billion in the previous day.

This reflects the impact of the Central Bank of Nigeria’s Open Market Operations (OMO) maturities of N321.48 billion that hit the system earlier, Chapel Hill noted.

Then, the Open Buy Back (OBB) and Overnight (OVN) rates declined by 0.88% and 1.00% to 1.63% and 2.25% respectively.

Analysts at Chapel Hill Denham stated that pressures should remain benign until the retail FX auction, barring a cash reserve ratio (CRR) debit by the CBN.

Read Also: Interbank Rates Decline to Single Digit as Liquidity Improves

In the fixed income market, Chapel Hill reckoned that despite the high liquidity in the financial system, sentiments were broadly mixed in the fixed income market.

At the front end of the curve, rates on treasury bills declined, due to the surplus liquidity and the recently published Q4-2020 NTB auction calendar.

Discount rates on benchmark treasury bills compressed by 33 basis points (bps) to 2.03%, driven by mid (-41bps to 1.83%) and long (-40bps to 2.61%) day to maturity (DTMs).

The bond market recorded a mixed performance, as short duration remained in favour, while apathy for long duration bonds persisted. On the whole, the benchmark yield curve compressed by 9bps to 7.90%.

The recently published Q4-2020 NTB auction calendar revealed that the Debt Management office (DMO) will be rolling over only 87% of maturing bills, after frontloading its issuances in the first half of the year to take advantage of high demand.

The DMO plans to issue a total of N918.45 billion, split between 91-day (N95.25bn), 182-day (N113.36bn) and 364-day (N709.84bn) bills.

The first auction in the new calendar is scheduled to hold next week, with the DMO offering N148bn: N4.4bn of 91-day, N14.0bn of 182-day and N129.7bn of 364-day bills.

Meanwhile, the previous auction closed at 1.15%, 1.80% and 3.34% respectively.

Chapel Hill Denham stated that based on the calendar, a net NTB maturity is expected, while liquidity will be further supported by OMO maturities totaling N250 billion.

“As such, we expect the auction to be well bid, while funding pressures should remain minimal until the retail FX auction”, Chapel Hill stated.

Yields Drop as DMO Roll over 87% of Maturing Bills