Because deposit money banks and other authorized dealers in the fixed income market decreased their holdings in anticipation of a spot rate adjustment, the average yield on Nigerian Treasury bills (NTB) increased by 68 basis points.
The financial system’s low liquidity, which compelled some authorized dealers to reduce their holdings of Treasury notes, supported the bearish trade. According to analysts, when the interest rate on the Central Bank of Nigeria’s (CBN) standing lending facility spiked, several local deposit money banks reduced their cash reserves to bridge the liquidity shortfall.
Bank liquidity situations do vary, though, as several commercial banks with large sums of cash began charging exorbitant interest on their surplus reserves. The financial system liquidity stayed negative following a significant outflow for Treasury bills auction sales by the apex bank. Consequently, the Open Repo Rate (OPR) increased by 631 bps to 31.50%, while the Overnight Rate (O/N) increased by 610 bps to 31.92%.
Fixed-interest securities rebalance portfolios as part of efforts to optimise returns in the face of high inflation conditions. Although inflation rate pressure is expected to ease in June, based on analysts’ consensus, high spot rate pricing is unlikely in the short term, analysts said.
Investors’ sentiment has been mixed due to robust liquidity access even with a negative interest yield and the huge gap between inflation (33.95%) and the benchmark interest rate (26.25%).
In its market update, Cordros Capital Limited told investors that the average yield pared at the short (-1 bp) and mid (-1 bp) segments. Analysts attributed the yield contraction to investors’ interests in the 86-day maturity, causing its yield to dip by 1 bp.
The market also registered additional demand in the belly of the curve. The Treasury instrument, with a 177-day maturity, experienced a rally that dragged its yield down by -1 bp. Conversely, the average yield expanded at the long (+3 bps) end, driven by the selloff of the 324-day to maturity (+44 bps) bill. Meanwhile, the average yield declined by 2 basis points to 23.4% in the OMO segment.
Overall, the Treasury bills market had a mixed to bearish theme today, driven by tight liquidity and mild demand for long-dated papers. As a result, the average mid-rate increased to 21.15% from 20.47% yesterday, AIICO Capital Limited said.
