The average yield on Nigerian Treasury notes rose 11 basis points to 3.4% as a result of secondary market selloffs on short-dated securities. Bearish trade was fueled in part by liquidity shortages in the money market ahead of the Central Bank’s main market auction on Wednesday.
Short-term benchmark interest rates rose to double digits as banking sector liquidity concerns increased. On Friday, the lending overnight rate increased by 545 basis points to 23.3% as a result of N300.00 billion in OMO auction debits.
According to Cordros Capital Limited, the amount debited against the liquidity level overshadowed the week’s substantial influx of N65.36 billion in FGN bond coupon payments.
The investment firm said despite this, the average system liquidity closed higher at a net long position of N334.16 billion versus a net long position of N250.11 billion in the previous week, highlighting DMBs’ sustained borrowing from the CBN’s SLF window.
Given the market development, trading activities in the T-bills secondary market were mostly subdued amid mild sell pressures on a few short-dated papers. Across the market segments, Cordros Capital analysts said the average yield advanced by 11 basis points to 3.4% in the NTB segment but pared by 1bp to 8.4% in the OMO bills secondary market.
At the OMO auction conducted last week, the CBN offered N300.00 billion, split as N75.00 billion of the 92-day, N75.00 billion of the 183-day, and N150.00 billion of the 365-day bills.
Total subscription at the auction settled at N520.10 billion – which signified an increase in demand from the previous auction which registered a total subscription of N414.20 billion- with a bid-to-offer ratio of 1.7x.
Details from the auction result showed that CBN allotted N300.00 billion. This was split as N15.00 billion for the 92-day, N15.20 billion for the 183-day, and N270.00 billion for the 365-day. Naira Steadies as Banks Issue Update on FX Purchase
Further detail indicated that spot rates plunged as increased demand allowed downward repricing. Details from the OMO auction showed that stop rates for 92-day bills were sold at 10.00%, which was 50 basis points below the previous rate of 10.50%.
Also, 183-day OMO bills attracted a 13.50% spot rate which represents a 50 basis points decline from 14.00% offered at the previous auction and 365-day bills were sold at 17.50% versus the spot rate of 17.75% at the previous auction.
This week, CBN is expected to conduct a primary market auction to roll over N231.82 billion worth of maturities.
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