Following selloffs in the short, belly, and long-dated securities, the average yield on Nigerian Treasury notes increased by 281 basis points on Thursday. The pessimistic bias emerged when the market assessed the net consequences of the monetary authority’s recent interest rate rise on their portfolios.
The secondary market buying of Nigerian Treasury Bills had increased, aided by substantial liquidity in the banking system. As the actual return on investment in the fixed income market stays negative across risk-free government borrowing instruments, the inflation rate has already surpassed the upside.
Despite the negative interest rate, demand for Nigerian Treasury notes issued by the top bank has been high, allowing the Central Bank to reduce market rates to single digits. Though the market’s liquidity remained strong yesterday, there were exit transactions throughout tenure as the market continues to look for triggers to drive yield repricing.
A surge in banking system liquidity was caused by around N600 billion inflows from FAAC. Futureview Financial Services Limited disclosed in its market update that system liquidity grew to 441.72 billion on Thursday, up from 290.94 billion midweek.
In the absence of financial demands, the open repo rate (OPR) and overnight lending rate (OVN) both fell to 0.90% and 1.30%, respectively, according to data from MarketForces Africa’s FMDQ Exchange platform review.
The bearish trend in the secondary market caused the average yield to expand by 281 basis points to 7.1%. In its market update, Cordros Capital Limited said across the curve, the average yield advanced at the short (+179bps), mid (+234bps), and long (+334bps) segments.
The upward yield trend came following profit-taking on the 91-day to-maturity (+204bps), 182 days to maturity (+268bps) and 336 days to maturity (+422bps) bills, respectively.
The true yield jumped higher as a result of sell pressures from traders seeking higher yields. On Wednesday, the treasury bills market traded cold as investor shifted their attention towards the CBN primary market auction.
The apex bank auction result showed allotment of N264.31 billion out of the total subscription of N398.15 billion.
