T-Bills Yield Moderates as Investors Position for DMO Auction

T-Bills Yield Moderates as Investors Position for DMO Auction

The average yield on Nigerian Treasury Bills slowdown 4 basis points on Tuesday as investors’ anticipate fresh supply from Debt management office N150 billion bonds-re-issuance.

Yields have been peppered by the disinflation position while the monetary policy committee decided to keep benchmark interest rates would sustain negative returns earned by investors.

Some analysts’ call government borrowing from the market at rates below average inflation position financial repression but Sonnie Ayere told MarketForces Africa in a discussion that the market ought not to pay a premium on risk-free instruments.

In the money market, a strain on the financial system was spotted as interbank rates expanded. Data from the FMDQ platform shows that open buy back increased 100 basis points to 15.50% on Tuesday.

Also, the overnight lending rate expanded by 100 basis points to 16.3% as Cordros Capital analysts attributed the development absence of any significant inflows into the system.

As investors position ahead of bonds auction, the Nigerian Treasury bills secondary market was bullish, as the average yield contracted by 4 basis points to 5.5%.

Across the benchmark curve, analysts said average yield declined at the long (-9bps) end due to demand for the 338 day-to-maturity (-78bps) bill but stayed flat at the short and mid segments.

Similarly, the average yield at the open market operations (OMO) segment pared by a basis points to 6.3%, according to Cordros Capital analysts report.

Market data shows that trading activity in the FGN bond secondary market was mixed, as investors anticipate fresh supply at tomorrow’s PMA with the average yield was unchanged at 11.2%.

Across the benchmark curve, analysts stated that average yield expanded at the long (+1bp), as investors sold off the MAR-2035 (+10bps) bond, but stayed flat at the short and mid segments.

Relatively, the fixed income space was again relatively while investors anticipate N150 billion federal government bonds to be re-issued by the Debt Management Office.

Some analysts are predicting a robust subscription as the Federal Government of Nigeria, through the DMO will be conducting a bond auction on Wednesday. DMO circular indicated that the total amount to be on offer will be N150 billion, adding that all instruments on offer are re-opening issues.

The offer detail split the total sum to be issued as 13.98% FGN FEB 2028 N50 billion 12.40% FGN MAR 2036 N50 billion 12.98% FGN MAR 2050 N50 billion.

Meristem Securities Limited in a report recalled that the DMO held its monthly auction in August 2021 where it offered N150 billion on 2028, 2035 and 2050 instruments collectively.

Analysts said the instruments on offer were oversubscribed with bid to cover ratios of 1.55x, 2.10x, and 3.55x across the 13.98% FEB 2028, 12.40% MAR 2036 and 12.98% MAR 2050 instruments respectively.

“Since the last auction, inflationary pressures have eased marginally – headline inflation fell to 17.01% in August vs. 17.38% in July 2021- due mainly to the impact of a higher base and harvest (supply) of key agricultural produce”, Meristem noted.

Nevertheless, the investment firm said real investment returns remain firmly in the negative territory, adding that this is not expected to deter investors at the coming auction.

The government on the other hand is less inclined to borrow from the domestic market due to the expectation of Eurobond issuance worth as much as US$6 billion or N2.48 trillion based on FX rate at the investors and exporters window on Tuesday.

Recall that the Federal government also seeks an additional external loan of USD4.05 billion and EUR710 million from the World Bank and other foreign sources.

In the secondary market for FGN bonds, Meristem analysts hinted that the average yield moderated to 10.62% from 10.93% recorded on the date of the last auction, reflecting strong investor demand for bonds.

Thus, the firm stated that the odds are in favour of a decline in rates at the next auction given that supply is expected to be weak relative to demand. However, analysts also recognised that the federal government is expected to maintain the original coupon rates on the instruments on offer.

T-Bills Yield Moderates as Investors Position for DMO Auction