When the value of the local currency declines, fund managers and local investors flood the secondary market for Treasury notes in an effort to lessen Nigeria’s naira’s exposure to the country’s increasing inflation rate.
The growth of the gross domestic product is slowing down, and there are more economic uncertainties now than there were before the presidential election. According to the statistics agency, Nigeria’s GDP increased by 3.40% in 2021 but decreased by 30 basis points to 3.10% in 2022. The oil sector’s subpar performance was what caused the downturn.
In today’s foreign exchange markets, the value of the naira decreased by 0.1%, trading at N461.60 to the US dollar in the Investors and Exporters FX window. Due to the fact that local banks are unable to match the demand for foreign currency, dealers claim that the naira was sold to consumers in the parallel market for N770.
Higher positioning on government debt has caused the yield curve to slant downward in the fixed income market. Due to the banking system’s solid liquidity position, the rise got underway late last year.
In line with lowering spot rates on the Central Bank of Nigeria’s main market auctions that year, T-Bills yield reversed from 11% in the fourth quarter of 2022 to falling to 2% in the first quarter of 2023.
Several market observers anticipate that if the yield repricing in the price of Nigerian Treasury notes rises, the quantity of liquidity in the market will reduce.
In the money market, the overnight lending rate contracted by 438 basis points to 12.6%, in the absence of any significant inflows into the system, Cordros Capital, a Lagos-based investment firm said in a note to investors.
Following bullish transactions in the Treasury bills secondary market on Wednesday, the average yield declined by 2 basis points to 4.1%. Across the curve, traders said the average yield contracted at the short (-4bps) end following buying interests in the 36-day to maturity (-25bps) bill.
Meanwhile, the average yield was flat at the mid and long segments. Elsewhere, the average yield was unchanged at 3.8% in the OMO segment.
