Nigerian Treasury note average yields sharply decline as secondary market purchasing impetus builds. When participants in the central bank’s weekly auction moved their losing bids to the secondary market in order to replenish them, the yield contracted.
According to the auction results, the apex bank lowered the spot rate on an instrument made of one-year Treasury notes to 20.70%. In an attempt to draw in international investors, the Nigerian government set the spot rate on the 364-day chart at a significantly higher 25%.
Large inflows from the Federal Accounts allocation to 36 states and the Federal Capital Territory, which increased the level of liquidity in the financial system, supported the growth in demand for Treasury notes.
As such, the Nigerian interbank rates decreased across board for all tenor buckets, reflecting improved liquidity in the financial system. Key money market rates such as the open repo rate (OPR) and overnight lending rate (OVN) nosedived to 27.08% and 28.35%, respectively.
The market has been experiencing negative flows of funds that pushed short term benchmark interest rate higher amidst impacts of monetary policy tightening. Local deposit money banks in the country continue to borrow from the CBN standing lending facility to augment their liquidity positions.
The change in liquidity level, driven by FAAC inflows triggered rally in the Treasury bills secondary market, in addition to increase demand following lost bids at the midweek auction.
As a result, the average yield fell by 260 basis points to settle at 22.5%. In its market update, Cordros Capital Limited told investors that across the curve, the average yield declined at the short (-100bps), mid (-524bps) and long (-202bps) segments.
Traders said the yield contractions were driven by bargain hunting for the 91-day to maturity, which lost 591bps. The market also witnessed demand for 105-day to maturity, whose yield declined by 573bps. Market demand for 196-day to maturity caused its yield to drop by 432bps.
Also, the average yield contracted by 1bp to 18.8% in the OMO bills segment in the secondary market.
