Due to persistent demand and falling spot rates on the new issue in the primary market auction held by the Central Bank of Nigeria (CBN), the average yield on Nigerian Treasury Bills continues to decrease in the secondary market.
The local debt capital market has continued to see excessive demand for government securities, which helps to keep the yield curve flat as the monetary authority uses greater subscription levels to bargain for lower interest rates on bills.
However, market analysts predicted that the yield on Nigerian Treasury bills will rise in the upcoming week due to anticipated liquidity pressure. Despite a significantly higher inflation rate in Nigeria, optimistic emotions prevailed in the secondary market for Nigerian Treasury notes as the average yield on all instruments decreased and tracked 2%.
The National Bureau of Statistics is anticipated to publish its first estimate of inflation for January 2023 this week. This follows a slowdown noted in December 2022, when the consumer price index registered 21.34%, a drop of 13 basis points from 21.47% in November.
The Central Bank of Nigeria (CBN) auctioned treasury instruments worth 217.1 billion Naira at the Primary Market Auction (PMA) held last week. These instruments included 91-day bills (4.5 billion Naira), 182-day bills (1.3 billion Naira), and 364-day bills (211.2 billion Naira).
Despite being lower than the last auction, according to market watchers, there was still a respectable demand with a total subscription of N1.06 trillion, as the bid-to-cover ratio dropped to 2.5x from 4.7x.
The demand for long-dated notes in the CBN auction, which was worth N1.03 trillion last week, was typically greater than 97%. With a bid-to-cover ratio of 11.4x, the 182-day bill had the most purchasing interest across all tenors, while the 91-day and 364-day T-bills were oversubscribed by 2.2x and 2.5x, respectively..
Specifically, stop rates for the 364-day bills fell further to 2.24% (from 4.78%). Also, 91-day bill and 182-day bill rates fell to 0.10% (from 0.29%) and 0.30% (from 1.80%), respectively.
In a market note, analysts at Cordros Capital attribute yield performance in the secondary market to higher demand as investors looked to cover for lost bids at the CBN treasury auction on Wednesday.
Across the market segments, the average yield contracted by 68 basis points and 10 basis points to 1.3% and 1.5% in the open market operations (OMO bills) and NTB secondary markets, respectively.
Eventually, the CBN allotted bills worth N417.06 billion, split as N4.52 billion for the 91-day, N1.31 billion for the 182-day, and N411.23 billion for the 364-day bills.
“Given the expected tight liquidity in the system next week, we anticipate increased T-bills yields from current levels”, Cordros Capital said. This week, system liquidity tapered as sales of T-bills worth ₦417.1 billion offset inflows of ₦225.6 billion from maturing bills (of which OMO bills: ₦38.5 billion).
Consequently, the average daily system liquidity fell 54.9% week on week to ₦373.5 billion while interbank rates diverged with the open repo rate down 13 basis points to 10.8% and the overnight lending rate jumped up 6 basis points to 11.1%.
In the new week, the secondary market yield is anticipated to advance, supported by weak liquidity conditions in the absence of maturing T-bills and FGN Bond coupons, Afrinvest said.
