The market witnessed investors selling their holdings in the Nigerian Treasury notes before the auction, which increased the average yield to about 25% despite the anticipated rate hike.
Due to the significant liquidity in the financial markets and the economy, the market has been yielding negative returns on naira assets under inflationary conditions. The Central Bank of Nigeria (CBN) will hold a main market auction this week to refinance outstanding bills following a lackluster OMO auction that saw no sales.
The CBN must have publicized the results of its policy committee before the Debt Management Office, acting on its behalf, can roll over maturities totaling N277.96 billion midweek.
a rateIn the secondary market last week, interest rate-sensitive Nigerian Treasury bills yields rose sharply as investors offloaded naira assets in anticipation of a rate hike by the monetary authority.
In a notice, the apex bank announced that its monetary policy committee will be meeting from Monday to Tuesday to review changing market dynamics.
the inflationAnalysts are projecting that the benchmark interest rate will be adjusted upward, though investment firms differ on the exact figure. Since the last meeting, the inflation rate has grown, albeit slowly, following the CBN monetary policy tightening.
The last interest rate hike booked by the authority to anchor headline inflation conditions resulted in an adjustment in spot rate pricing at the primary market auctions.
In the just-concluded week, traders said in their separate market notes that the Treasury bills market experienced bearish bias for most of the week due to limited system liquidity.
The local market anticipates another round of yield repricing following the committee meeting; therefore, investor participation in the CBN’s midweek OMO auction was mediocre, leading to a “no sale” result.
In a report, traders at Cordros Capital Limited informed investors that FPIs withdrew from their positions, maintaining the adverse trend observed in the Treasury bills secondary market in the previous weeks. The investment banking company stated in a memo obtained that the selloffs’ actions increased the average yield across all asset classes.
Analysts said that the average yield climbed by 6 basis points to 24.3% in the OMO segment and by 156 basis points to 24.9% in the T-bills segment across all market categories.
“We note that the CBN conducted an OMO auction midweek, which was met with paltry interest following a subscription of N36.00 billion, compared to the N150.00 billion on offer. As a result, the apex bank ended the auction with no sales.”
“We expect the outcome of the MPC meeting scheduled for July 22 and 23 to influence sentiments in the T-bill secondary market. Nonetheless, we do not rule out a likely return of demand in the secondary market, supported by the significant amount of liquidity influx expected into the financial system next week,” Cordros Capital Limited told investors in a note.
