In the face of rising headline inflation, the average yield on Nigerian Treasury notes has remained stable at roughly 3%. Traders in the secondary market reported a light trading session as investors evaluated price volatility against the prospect of an economic revival.
Year on year, headline inflation in December climbed by +72 basis points to 28.92%. The seasonal demand surge connected with end-of-year celebrations contributed to the increase in headline inflation.
This indicates that interest rates may be tightened, as a rate cut is improbable at the upcoming monetary policy committee meeting. Traders anticipate yield repricing as the market looks for additional triggers to drive the activity.
Sustained bullish performance in the equities market has supported a swing in the yield curve while liquidity level continues to set trading direction. In the money market, short-term benchmark interest rates reacted negatively to a liquidity squeeze in the space.
Data from the FMDQ platform showed that the overnight lending rate expanded by 395 basis points to 21.8%, in the absence of any significant funding flow into the financial system.
Key money market rates, including the open repo rate (OPR) and overnight lending rate (OVN), witnessed increases by 5.00% and 3.95% to close at 21.58% and 21.75%, respectively, according to a report by Cowry Asset Limited.
The Nigerian Interbank Borrowing Rate (NIBOR) displayed downward trends across all tenor buckets indicating liquidity ease in the system, analysts said in a note. Notably, the Overnight NIBOR declined by 3.00% to 17.5%. Also, the 1-month, 3-month and 6-month NIBOR experienced declines of 2.75%, 2.57% and 1.88%, respectively.
The liquidity position impacted transactions in the secondary market, simultaneously when fixed interest securities investors weighed inflation trend versus portfolio return.
The Treasury bills secondary market traded in a lull as the average yield remained 3.0%. Meanwhile, the average yield pared by a basis points to 8.4% in the OMO bills segment.
