Treasury Rate Shifts as Market Liquidity Condition Deteriorates
Treasury Rate Shifts as Market Liquidity Condition Deteriorates
Rate on the Nigerian Treasury bills shifts weekend as financial system liquidity condition deteriorates amidst global market rout. The market has witnessed a slowdown in yield repricing following two consecutive disinflations.
Due to liquidity squeeze, the overnight lending rate inched higher by 800 basis points this week to 20.5% as Central Bank debited banks for failing to meet loan to deposit ratio target.
Adding to the liquidity was an outflow associated with the CBN’s weekly auction which outweighed N20 billion inflows from OMO maturities.
Cordros Capital analysts said they expect improved system liquidity and, by extension, moderation in the overnight rate next week as inflows from the maturing JUL-2021 bond of 561.05 billion, FGN bond coupon payments of N40.68 billion and OMO maturities value at N10.00 billion will outweigh funding requirements.
Naira
Treasury bills secondary market closed on a bearish note following a cold trading record in the fixed income market. Consequently, the average yield across all instruments increased by 3 basis points to 8.4%.
Specifically, analysts see average yield at the Nigerian Treasury bill segment edge higher by 4 basis points to 6.6% across the market segments.
Elsewhere, analysts spotted that the average yield at the OMO segment contracted by 5 basis points to 9.9% given improved demand in the secondary market following the CBN’s two-week hiatus from the primary market.
Analysts at Cordros Capital highlighted in an email sent to clients that the CBN returned to the market this week, and sold N17.00 billion worth of OMO bills to market participants and maintained the stop rates across the three tenors, as with prior auctions.
“In the coming week, we expect the average yield on T-bills to decline as we envisage improved system liquidity. Also, we expect quiet trading at the NTB market as participants’ position for next week’s primary market auction (PMA) with the CBN set to roll over N109.43 billion worth of maturities”.
In the bond market, bearish sentiments also returned to the bonds secondary market as demand for the short and mid dated instruments weakened.
Specifically, average yields expanded by 8 basis points to 11.7%. Across the benchmark curve, it was noted that average yield inched higher at the short (+4bps) and mid (+20bps) segments.
The uptick came following sell-offs of the JAN-2026 (+25bps) and NOV-2029 (+27bps) bonds, respectively; while it pared at the long (-3bps) end following sustained buying interest in the APR-2037 (-13bps) bond.
On Wednesday, the debt management office (DMO) published the Q3-21 bond issuance calendar, which showed no changes in volumes offered.
However, the short and mid dated instruments were changed to the FEB-2028 and MAR-2036 bonds, respectively (previously MAR-2027 and MAR-2035).
“In the coming week, we maintain our expectations of lower yields as investors take positions ahead of the maturing JUL-2021 bond”, analysts projected.
Also, we expect the release of the June 2021 CPI which Cordros analysts projected to print at 17.83% to further shape market sentiments and the direction of yields.
In a related development, Nigeria’s foreign reserves sustained its decline, dipping US$113.15 million week on week to US$33.12 billion as naira depreciated by 0.1% to N411.75 to a dollar at Investors and Exporters window.
The local currency also lose ground at the parallel market, depreciated 0.4% to NGN505.00 to a dollar. At the Investors and Exporters window, total turnover decreased by 24.5% in five days to US$526.79 million, with trades consummated within the NGN400.00 – 420.86/USD band.
However, in the forwards market, the rate was flat at the 1-month (NGN413.52/USD) contract but appreciated across the 3-month (+0.1% to NGN417.65/USD), 6-month (+0.1% to NGN423.69/USD) and 1-year (+0.1% to NGN435.54/USD) contracts.
“We expect improved liquidity in the IEW over the medium term, given our expectation of increased oil inflows in line with the rise in crude oil prices, and (inflows from FCY borrowings. Accordingly, we expect the naira to remain relatively range-bound (NGN410.00 – NGN415.00) at the Investors and Exporters window”, Cordros said.
Treasury Rate Shifts as Market Liquidity Condition Deteriorates
