Yield Rises as Banks Position in Long-dated Treasury Bills

Yield Rises as Banks Position in Long-dated Treasury Bills

The average yield on treasury instruments spikes as banks positioned in long-dated bills amidst the expectation of cash reserve ratio debits. In the money market, interbank rates witnessed a slowdown but no more within single-digit after the financial system adjusted to net funds flow.

Ahead of the September consumers price index data released by the National Bureau of Statistics, some investment analysts have predicted a further slowdown in inflation worries, anchored on the financial year 2020 base effect on current reading.

Nigeria’s headline inflation rate has been on a month on month decline since April after 19 consecutive months of upward adjustment in price level.

In a market report, Cordros Capital analysts report shows the overnight rate contracted by 125 basis points week on week to 14.5% in the absence of significant funding pressures to offset the positive average liquidity position worth N62.59 billion during the week.

Open buy back (OBB) closed at 14%, data from the FMDQ Exchange platform shows; amidst moderated financial system liquidity pressures seen on Friday.

“We expect tighter system liquidity in the coming week, as anticipated debits for cash reserve ratio and Central Bank’s weekly auctions are likely to outweigh inflows from open market operations (OMO) maturities value at N112.00 billion”, Cordros Capital stated.

According to analysts, the Treasury bills secondary market closed the week on a bearish note as the average yield across all instruments expanded by 7 basis points to 5.9%. Across the market segments, analysts said the average yield expanded by 15 basis points to 6.5% at the open market operations segment.

Elsewhere, average yield pared by a basis point to 5.3% at the Nigerian Treasury Bills segment as local banks invested idle funds in the higher-yielding long-dated Treasury Bills instruments.

Cordros Capital analysts envisage the yield on T-bills will settle lower in the coming week, as investors improve buying activities with limited offers in light of significantly lower net issuances at the past few auctions.

Also, analysts expect quiet trading in the first few days at the Nigerian Treasury bills segment as participants position for the mid-week primary market auctions, with the CBN set to roll over N121.66 billion worth of maturities.

Also, activities in the federal government bond witnessed an improvement despite low issuance by the Debt Management Office. Record level activities were however witnessed in the just concluded week.

As bondholders seek impressive returns, analysts spotted that a bearish sentiment returned to the secondary market as investors continue to upwardly reprice instruments on the back of increased cut-off rates at recent auctions.

Cordros Capital analysts said in an email to clients that the average yield expanded by 14 basis points to 11.3%. Over the long term, the average yield in this space had stood lower at 11%.

“We highlight that selling activity was spread across the benchmark curve, with the average yield expanding at the short (+25bps), mid (+21bps) and long (+10bps) segments as investors sold off the JAN-2026 (+45bps), MAR-2027 (+69bps) and APR-2037 (+21bps) bonds, respectively”.

Recall the DMO published the fourth quarter 20221 bond issuance calendar on Wednesday, which showed a reduction in volumes offered to N400.00-480.00 billion from N450.00-540.00 billion in the third quarter of 2021. Also, the short and mid dated instruments were changed to the JAN-2026 and APR-2037 bonds, respectively (previously FEB-2028 and MAR-2036).

“In reaction to our prognosis of reduced supply by the DMO, we reiterate our expectation of lower average yields in the medium term as investors are likely to take positions across the curve”, Cordros Capital told its clients.

In the week ahead, Cordros Capital expects the release of the September 2021 consumers price index to further shape market sentiments and the direction of yields. Analysts however expect the headline inflation rate for September to print at 16.49%, from 17.01% in August. # Yield Rises as Banks Position in Long-dated Treasury Bills