Yields Uptrend Back Down as CBN Repriced Spot Rates
Godwin Emefiele, CBN Gov

Yields Uptrend Back Down as CBN Repriced Spot Rates

The yield curve reversed in the secondary market following demand pressures that resulted in lower spot rates on long-dated treasury bills offered for subscription by the apex bank.

Stop rates on Nigerian Treasury bills were mixed, according to the Central Bank of Nigeria’s primary market auction conducted last week as market participants positioned strongly in long-dated instruments.

However, the level of subscription seen helped the CBN to re-price the spot rate on long-dated Treasury bills downward amidst an expectation that the monetary policy will consolidate on its fast and furious hawkish mood in September 2022.

The fixed income market has seen yield repricing amidst interest rate hikes and rising inflation rate pressures in the domestic economy, which continue to pose threat to returns on naira assets.

Last week, the CBN conducted an auction to control the liquidity level in the market following a need to stem the nation’s worsening inflation rate which printed at 20.52%, the level seen 17 years ago.

Detail of the auction result showed that the spot rate on 364-day treasury bills slowed down to 9.75% from 10% in the previous auction. Market analysts attributed the development to demand pressures at a time both interest and inflation rates are moving upward.

Midweek, the apex bank offered for subscriptions buckets of Treasury bills worth N159.60 billion split across 91-day bills worth N11.44 billion, 182-day bills worth N21.85 billion, and 364-day bills worth N126.31 billion.

The 364-day Treasury bill was issued at a lower rate amid strong investor appetite, according to Cowry Asset Management Limited. Hence, the stop rate for the 364-day bills moderated to 9.75% from (10.00%).

Meanwhile, there was a marginal increase in the stop rate for 182-day bills to 6.00% from 5.85% while the stop rate for 91-Day bills was unchanged at 5.50%.

In its market note, Cowry Asset analysts said activities in the secondary market were largely bullish as traders moved in the direction of the 364-day bill rate. READ: Funding Pressure Sustained as Spot Rate on T-Bills Jumps to 9%

According to Cowry Asset analysts, Nigerian True Treasury Yields for 1 month, 3 months, 6 months and 12 months fell to 6.48% (from 6.99%), 7.61% (from 9.00%) and 8.69% (from 8.99%) respectively.

Meanwhile, activities in the money market were largely quiet as the Central Bank sold N20 billion worth of open market operations (OMO bills) to mop up liquidity as there was no maturing instrument – thus weakening the financial system liquidity.

At the auction, stop rates were maintained at 7.00%, 8.50% and 10.10%, respectively, according to auction results posted on its website. Last week, the Nigerian Treasury bills secondary market closed with bearish sentiments.

The market was driven by healthy system liquidity that continued to underpin demand for government bills. Consequently, the average yield across all Treasury bills instruments dipped by 10 basis points to 8.3%, according to traders’ notes reviewed by MarketFoces.

Across the segments, Cordros Capital analyst said the average yield contacted by 11 basis points and 21 basis points to 10.6% and 7.6% at the OMO bills and Nigerian Treasury bills secondary markets, respectively.

#Yields Uptrend Back Down as CBN Repriced Spot Rates