Treasury Market Sees Yield Contraction Ahead of CBN Auction
Treasury Market Sees Yield Contraction Ahead of CBN Auction
Treasury bills market sees contraction in the average yield on Tuesday ahead of Central Bank of Nigeria (CBN) primary market auction on Wednesday. As investors position ahead of the auction, trading in the Nigerian Treasury bills secondary market was bullish, as the average yield contracted by 4 basis points to 5.6%, Cordros Capital market report shows.
Analysts said across the benchmark curve, the average yield stayed flat at the short and mid-segment but contracted at the long (-9bps) end due to demand for the 345 day to maturity (-80bps) bill.
Similarly, the average yield at the open market operations (OMO) segment declined by 15bps to 6.3%. However, the federal government bond secondary market turned bearish, as the average yield expanded by 7 basis points to 11.1%.
Across the benchmark curve, Cordros Capital analysts said the average yield expanded at the short (+10bps), mid (+13bps) and long (+2bps) segments following sell-offs of the MAR-2027 (+31bps), FEB-2028 (+33bps) and MAR-2050 bonds, respectively.
In the money market, interbank rates continue to slow down. Data from the FMDQ platform shows that open buy back shed 233 basis points to close at 13% as the financial system stays robust.
Also, the overnight lending rate contracted by 225 basis points to 13.8%, the trend that analysts attribute to the absence of significant funding pressures on the system.
Tomorrow, CBN will hold a Treasury Bills Primary Market Auction (PMA) where T-Bills totalling N111.87 billion will mature and be rolled over. Market participants expect the rollover to come as N2.26 billion, N3.24 billion and N106.37 billion across the 91-day, 182- day, and 364-day instruments respectively.
Recall that at the last PMA, stop rates across all offered instruments: 91-day, 182-day, and 364- day were unchanged at 2.50%, 3.50% and 7.20% respectively.
Meristem Securities said in a report that investors’ demand waned as the overall bid to cover ratio declined to 0.71x from 1.16x recorded at the previous auction, largely driven by the reduced demand for the 364-day instrument (bid to cover: 0.69x from 1.23x in the prior auction).
“The weakened investors’ appetite for the 364-day instrument could be attributed to the expectation of a reduced rate on the instrument, picking from previous trends”, it said.
On the other hand, analysts said they observed an uptick in investors’ subscriptions on the 91- and 182-day instruments which recorded an average subscription to offer: 0.96x against 0.85x as at the previous auction.
“In the coming auction, we expect stop rates on the 91- and 182-Day instruments to remain unchanged at previous levels. For the 364-day instrument, we anticipate a slight moderation in the stop rate.
“This stems from our expectation that the FG would be more inclined towards external borrowings, especially given the oversubscription witnessed on its Eurobond offering in the market recently”, analysts at Meristem said in a note.
Although the inflation rate continues to decline, moderating to 17.01% in August from 17.38% in July, it remains well above yields in the fixed income market resulting in a negative real rate of return.
“We, therefore, expect the bearish sentiment in the secondary market to persist over the near to medium term given the current yield level”, Meristem added.
