Despite reduced rates that expose returns to inflationary pressures, investors continue to flock to Nigerian Treasury notes. Despite the fact that naira assets remain highly vulnerable to macroeconomic difficulties, the market saw purchasing activity in both the primary and secondary markets last week.
After the Central Bank of Nigeria (CBN) lowered spot rates at a main market auction last week, investors injected funds into bills, causing the average yield to rise.
The rate swings were caused by the central bank’s inability to match total bids for Nigerian bills in the primary market auction, forcing investors to raise their buying momentum in the secondary market.
Separate traders notified investors in their market notes that market players rushed to the secondary market to compensate for their missed bids at the primary market.
As a result of increased positioning on government short-term borrowing instruments despite inflation exposure, the average yield across all instruments contracted by 55 basis points to 8.1%.
Across the market segments, analysts at Cordros Capital Limited said in an email to investors that the average yield decreased also by 126 basis points to 12.1% in the OMO bills segment.
On Thursday, the Central Bank of Nigeria (CBN) conducted its Primary Market auction for Nigerian treasury bills, successfully selling maturing bills with a total value of N177.12 billion.
These bills were offered across three different tenors: N1.75 billion for the 91-day maturity, N1.56 billion for the 182-day maturity, and the bulk of N173.81 billion for the 364-day maturity.
According to asset managers, the outcome of the auction points to robust investor appetite for Nigerian treasury bills, with increased subscription levels and declining stop rates.
The auction attracted a total subscription of N786.79 billion, which was a significant increase from the N643.89 billion recorded at the previous auction, according to traders’ notes.
This surge in subscriptions led to a bid-to-cover ratio of 4.44x across all maturity periods, compared to the 4.23x ratio observed in the previous auction. The spot rate for 91-day bills dropped by 151 basis points to 4.99%. The spot rate for 182-day bills fell by 45 basis points to 6.55% and 364-day bills were priced down to 11.37% from 12.98%.
According to Cowry Asset Management, the majority of the demand was focused on the 364-day bills, indicating a preference among investors for longer-term securities.
The investment firm expects yields in the secondary market to stay muted in the new week as the liquidity inflow and the recent primary market auctions for the treasury bills have significant effects on the market. Thus, yields are expected to remain subdued in the short term.
Projecting to the new week, Cordros Capital anticipates that yield in the Treasury bills secondary market will likely increase as the possible slim liquidity position will drive down demand for bills. Naira Devaluation Deepens Economic Crisis in Nigeria
In the money market, short-term benchmark rates declined due to liquidity pressures in the financial system. The overnight lending rate expanded by 10 basis points to 3.4% despite the FGN bond coupon payments worth N202.34 billion at the end of the week.
Analysts highlighted that the average system liquidity closed slightly higher this week at a net long position of N137.20 billion versus a net long position of N109.42 billion in the previous week.
