As the banking system retains reasonably good liquidity, the Central Bank of Nigeria (CBN) offered Treasury bills instruments to fixed income investors at reduced rates.
Due to a spike in subscription numbers, the apex’s last auction saw a continuous fall in spot prices on rollover bills. Despite rising inflation and interest rates, this is happening in the fixed income market.
Treasury bill holders, including banks, pension fund administrators, and other market participants, have seen their portfolios’ negative real returns deepen. According to analysts, the “yield from Nigerian Treasury bills is better than nothing money concept.”
“Market understands it costs money to keep money. Although rates are low, it reduces inflation exposure as it is basically risk-free – it doesn’t need to provide total cover to consumer price index movement. No economic agent pays premium on risk-free naira assets”, a senior Broadstreet financial expert told MarketForces Africa.
Last week, the overnight rate expanded by 33 basis points to 1.6%, as the average system liquidity this week settled lower at a net long position of N708.40 billion as against a net long position of N782.85 billion in the previous week.
Market analysts at Cordros Capital Limited said they believe that the overnight lending rate will head northwards in the new week following the outflow from this month’s FGN bond auction, which is expected to mop up the surplus liquidity in the financial system.
At the same time, the financial system is expected to be boosted with an expected inflow from FGN bond coupon payments worth N155.95 billion in the new week.
Reacting to the development, the fixed income market maintains a rally, causing the yield to decline as investors wait for market catalysts to drive yield upward. In the secondary market, the average yield across all instruments contracted by 3 basis points to 6.3%.
The trend in the T-bills market was attributable to the combined impact of the healthy system liquidity and market participants moving to the secondary market to compensate for lost bids at the CBN auction conducted midweek.
The CBN sold Treasury bills worth N141.77 billion to completely mop up the total sum that matured at a lower rate. The monetary authority offered was split as N2.78 billion for the 91-day, N1.49 billion for the 182-day, and N137.50 billion for the 364-day bills.
Total subscription at the auction came at N691.86 billion (bid-to-offer settled at 4.9x) with more interest on the longer-dated bills worth N654.62 billion, accounting for 94.6% of the total subscription.
The auction close with the CBN selling exactly the amount offered to investors. However, the stop rate for 364-day bills moderated 29 basis points to 5.94%. Likewise, stop rates for 91-Day and 182-day bills were lower at 2.86% (from 2.87%) and 3.50% (from 4.37%), respectively.
